'Escape from the Era of Austerity' ... Han&Co Nears Launch of Korea's First 3 Trillion Won 'Continuation Fund'

[Asia Economy Reporter Park So-yeon] The private equity fund (PEF) Han & Company (Han & Co) is about to finalize the formation of a 'Continuation Fund' for the first time in South Korea. A continuation fund is an investment structure in which general partners (GPs) of asset management firms raise a new fund by recruiting new limited partners (LPs) instead of existing LPs to hold portfolio assets for the long term, transferring the assets to the new fund. If Han & Co completes this fund formation, it will be the first successful case in South Korea.

According to the investment banking (IB) industry on the 20th, Han & Co has been raising a continuation fund for long-term investment in Ssangyong C&E (formerly Ssangyong Cement) targeting domestic and foreign investors since the end of last year, and the fund formation with more than 3 trillion won in capital raised is imminent.

The method involves selling Ssangyong C&E, which is held in Han & Co’s first blind fund, to the continuation fund. Han & Co will manage the newly formed fund. For LPs such as the National Pension Service who participated in the Ssangyong C&E investment, this presents an opportunity to recover their investment. Existing LPs may also reinvest in the continuation fund after recovering their investment.

It is known that major players in the domestic capital market have actively participated in the formation of the continuation fund. This is interpreted as a move toward long-term investment instead of hastily recovering portfolio assets amid unstable market conditions such as rapid interest rate hikes and the prolonged Ukraine crisis. As interest rates accelerated and the economy contracted after COVID-19, making it difficult to recover quality assets, the continuation fund is being used to defer profit realization.

Meanwhile, Han & Co acquired a 46.14% controlling stake in Ssangyong C&E for 883.7 billion won using its first blind fund in 2016. Subsequently, it invested an additional 100 billion won through a rights offering and also acquired a 32.36% stake held by Japan’s Taiheiyo Cement, the then second-largest shareholder, for 454.8 billion won. In total, Han & Co invested 1.4375 trillion won to secure a 77.68% stake in Ssangyong C&E.

Ssangyong C&E is recently pursuing a transformation into a comprehensive environmental company. This is to respond to global industrial environmental changes emphasizing ESG (Environmental, Social, and Governance) management. Two years ago, it established the industry’s first ESG Management Committee and declared that it would reduce the use of bituminous coal, the manufacturing fuel for cement, to zero by 2030.