Hedge Funds as a Funding Source for PEF Operators

Hedge funds are emerging as new players in the M&A market. Their scope is expanding to financing for PEFs and buyout deals.

According to investment banking sources, AJ Group acquired 100 percent of Daelim Industrial’s and Affirma Capital’s shares in Daelim Motorcycle, the largest motorcycle supplier in South Korea, by investing approximately 60 billion won. The deal is worth noting in that AJ Group’s consortium partners are A2 Partners, which is a new PEF operator, and Rhinos Asset Management, which had no buyout deal track record.

A2 Partners held hands with Rhinos Asset Management, a mezzanine investor, in order to attract investors. Their partnership is because A2 Partners’ only track record was Samyang Optics and it needed a medium-sized hedge fund with proven financing capabilities to overcome its weakness.

Hedge funds are working more and more closely with general partners in the M&A market these days. This is because the number of general partners is increasing and financial companies as anchor limited partners are becoming increasingly conservative in financing in the wake of COVID-19.

Under the circumstances, well-known hedge funds are also joining the investor list. For example, Centroid Investment worked with VIP Asset Management in taking over Woongjin Booksen this year. VIP Asset Management is a well-known value investing firm and turned itself from an investment advisory firm into a hedge fund operator in 2018. Even major general partners are working with hedge funds as well as institutional investors, too.

It is also said that the trend is because hedge funds are seeking new profit opportunities after a series of scandals. Recently, suspended fund redemptions were caused by LIME Asset Management and Optimus Asset Management and the financial authorities are planning to strengthen regulations, which has led to a shrinkage of the hedge fund market as a whole.

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