Goodbye Industrial Capital
The type of corporate ownership in Korea is changing these days. In short, industrial and financial capitalism is waning, while private equity funds (PEFs) are waxing.
According to the statistics of the Emerging Market Private Equity Association (EMPEA), the penetration ratio of local private equity firms, defined as their investment to the GDP, was 0.28 percent last year. The percentage had been 0.20 percent in 2012.
The private equity penetration ratio of Israel fell from 1.74 percent to 1.62 percent in the same period. Also, India (0.19 percent to 0.20 percent), sub-saharan Africa (0.09 percent to 0.12 percent), Poland (0.06 percent to 0.11 percent), and South Africa (0.04 percent to 0.06 percent) showed a growth in the ratio during the period. This trend is contrary to the United States (1.03 percent to 1.02 percent), Britain (1.04 percent to 0.89 percent), Brazil (0.20 percent to 0.13 percent), China (0.09 percent to 0.07 percent), Japan (0.09 percent to 0.04 percent), Turkey (0.04 percent to 0.03 percent), Russia (0.06 percent to 0.01 percent), and the Middle East and North Africa (0.05 percent to 0.01 percent).
Private equity funds were introduced to Korea 10 years ago. However, their reputations are still not that good, because they bought major corporations in Korea at dirt cheap prices during the 1997 Asian financial crisis and sold them back for huge profits.
Still, the perception is changing nowadays. Private equity funds are increasingly acting as catalysts for industrial structure reform and corporate restructuring based on M&As.
MBK Partners and the Bogo Fund, two of the leading PEFs, are distinguishing themselves in particular. Last year, MBK Partners obtained approval from the government to acquire the Korean corporation of ING Life, the fifth-largest life insurance company in Korea, to be comparable to the 11th position on the list of local big businesses. Bogo Fund, in the meantime, took over Tong Yang Securities, and the consortium of STIC Investment and Hana Daetoo Securities purchased 49 percent of the shares of defense company LIG Nex1.
The execution of investment is on the rise, too. A total of 237 PEFs were in business in Korea as of the end of last year, when the amount reached 9.3 trillion won to hit a new high.
The future outlook is very bright as well. The size of domestic pension funds is expanding rapidly along with the ratio of alternative investments such as PEF-based investment. Last year, the National Pension Service’s alternative investment amount broke the 40 trillion won (US$39.2 billion) mark. The NPS is planning to increase the ratio of alternative investment to at least 10 percent by 2019.
Still, concerns are rising at the same time over risk management. The average number of employees of the PEFs is just 20 to 30, but they have to cover a wide variety of business types and corporations.