Last Year's PEF Investment Hits Record High of 16 Trillion Won... 15% Increase from Previous Year

[Asia Economy Reporter Park Jihwan] Last year, the annual investment amount of domestic private equity funds (PEF) reached an all-time high. The number of newly established PEFs also recorded the highest level ever, indicating that a virtuous cycle structure for the growth of the PEF industry has been established.

According to the "2019 PEF Trends and Implications" report released by the Financial Supervisory Service on the 31st, as of the end of last year, the number of management participation-type PEFs totaled 721, growing 2.3 times compared to 2015 (316).

The amount committed by investors to PEFs (commitment amount) was 84.3 trillion KRW, an increase of 1.4 times compared to 2015, and the amount actually contributed by investors to PEFs (contributed amount) was 61.7 trillion KRW, increasing 1.6 times during the same period.

Domestic PEFs invested 16 trillion KRW in 500 companies last year and recovered 11.7 trillion KRW. The investment amount significantly exceeded the average investment execution scale of 11.7 trillion KRW over the previous three years. This is interpreted as being due to numerous large-scale deals such as Daewoo Construction by KDB Investment, Lotte Insurance by JKL Partners, and Seoul Mirama by Inmark PE. Compared to 13.9 trillion KRW the previous year, it increased by 2.1 trillion KRW (15.1%), setting a new record and marking three consecutive years of growth.

The recovery amount also reached a record high of 11.7 trillion KRW, increasing by 2.7 trillion KRW compared to the previous year. Major recovery targets included Orange Life Insurance and Daesung Industrial Gas by MBK Partners, SK Incheon Petrochemicals by Stonebridge Capital, and Ssangyong Cement by Hahn & Company.

The number of dissolved PEFs was 65, an increase of 7 compared to the previous year. As of the end of last year, the number of general partners (GPs) of PEFs was 304, up by 50 from 254 the previous year. Among them, 42 were counted as dedicated GPs. In particular, the entry of non-financial general corporations as GPs increased, continuing the upward trend in the proportion of dedicated GPs (210), which accounted for 69.1%.

Last year, the amount of new capital raised by PEFs (commitment amount of newly established PEFs) was 15.6 trillion KRW, a decrease of 800 billion KRW compared to the previous year. However, the number of newly established PEFs recorded an all-time high. A total of 206 new PEFs were established last year, an increase of 8 compared to the previous year.

The Financial Supervisory Service explained, "Last year, the domestic PEF market recorded all-time highs in the number of newly established PEFs, investment amount, recovery amount, and number of dissolved PEFs," adding, "This is due to the increase in new GP entries and PEF establishments and the establishment of a virtuous cycle structure in the PEF industry." However, it pointed out some concentration phenomena such as the increase of new GPs with insufficient financial experience, the high proportion of small project PEFs, and the domestic concentration of investment execution.

A Financial Supervisory Service official stated, "Going forward, while strengthening monitoring of variable factors such as the impact of COVID-19, we plan to support the qualitative growth of the PEF industry through customized inspections and enhanced supervision."