Last Year Institutional Private Equity Fund Commitments Reach 116 Trillion Won... 20.1% Increase YoY

[Asia Economy Reporter Lee Jung-yoon] Last year, the number of institution-only private equity funds exceeded 1,000, and the committed capital reached over 116 trillion KRW, showing a continuous growth trend.

According to the "2021 Institution-Only Private Equity Fund Trends and Implications" report released by the Financial Supervisory Service on the 23rd, as of the end of last year, the total number of institution-only private equity funds was 1,060, an increase of 211 compared to the previous year-end. The amount of capital committed by investors (committed capital) and the amount of capital actually invested (invested capital) were 116.1 trillion KRW and 87.4 trillion KRW, respectively, showing increases of 20.1% and 24.5% compared to the previous year.

Since October 21 last year, private equity funds have been divided into 'general' and 'institution-only' based on investors. Only certain professional investors such as pension funds and financial companies can invest in institution-only private equity funds, and general investors are not allowed to participate. The funds are managed by the general partner (GP). In general private equity funds, investor protection measures for general investors have been strengthened, and both general and professional investors can invest.

Last year, the investment execution scale of institution-only private equity funds was 27.3 trillion KRW, an increase of 50.8% (9.2 trillion KRW) compared to the previous year. Domestic investments amounted to 22.9 trillion KRW and overseas investments to 4.4 trillion KRW, increasing by 57.9% and 22.2%, respectively. By industry sector of the invested companies, the top five sectors?manufacturing, information and communication, finance and insurance, wholesale and retail, and professional scientific and technical services?accounted for 21.2 trillion KRW (77.7% of the total) in investments.

The unexecuted committed capital, indicating additional investment capacity, was 28.7 trillion KRW as of the end of last year, up 8.3%. The investment execution rate was 75.3%, up 2.6 percentage points from the previous year, but the overall committed capital increased, expanding investment capacity.

The scale of investment recovery by institution-only private equity funds was about 16.1 trillion KRW, down 9% (1.6 trillion KRW) from the previous year. This is understood to be due to a base effect from large-scale recoveries in the previous year and delays in recoveries caused by deteriorating performance of invested companies due to the impact of COVID-19. The number of institution-only private equity funds dissolved last year was 107, an increase of 16, with an average lifespan of 3.7 years.

Additionally, the number of GPs managing institution-only private equity funds last year was 394, an increase of 58 from the previous year. Among them, dedicated GPs numbered 294, accounting for 74.6% of the total. By size, large GPs with committed capital of 1 trillion KRW or more numbered 31, medium GPs with 100 billion to 1 trillion KRW numbered 151, and small GPs with less than 100 billion KRW numbered 212. The scale of institution-only private equity funds managed by large GPs accounted for 57.6%, indicating a high concentration of capital.

Last year, 318 new institution-only private equity funds were established, an increase of 99 compared to the previous year. The committed capital of newly established institution-only private equity funds was 23.4 trillion KRW, an increase of 5.5 trillion KRW. Among the newly established institution-only private equity funds last year, 17 were large funds with committed capital of 300 billion KRW or more, 48 were medium funds between 100 billion and 300 billion KRW, and 253 were small funds under 100 billion KRW. The increase is interpreted as mainly due to the market entry of small-scale dedicated GPs, leading to growth centered on small project funds.

The institution-only private equity fund industry continues to grow. Last year, the number of newly established funds and investment amounts reached record highs. Also, the participation rate of institution-only private equity funds in the top 20 large mergers and acquisitions (M&A) increased from 65% in 2019 to 80% in 2020 and 85% last year. Furthermore, as new entries into the institution-only private equity fund market increase centered on dedicated GPs, competition among small and medium-sized GPs is intensifying.

A Financial Supervisory Service official explained, "We plan to support institution-only private equity funds to be operated as autonomously as possible in a manner befitting private equity funds," adding, "We will continuously collect opinions from the institution-only private equity fund management industry and actively reflect them in supervisory tasks, while actively supporting diversification of investment targets such as overseas investments."