Woori Bank's Cautious Investment Mode Puts Small and Medium VC Firms on Alert

[Asia Economy Reporters So-yeon Park, Kwang-ho Lee] Woori Bank is showing a cautious approach toward external investments. Although it has consistently bet funds on venture capital (VC) and private equity funds (PEF), its stance on investments has recently become more conservative, causing difficulties for fund managers seeking private LP (limited partner) capital.

According to the investment banking (IB) industry on the 19th, Woori Bank appears to be slowing down its external investments. Due to worsening market conditions, the burden of exit (investment recovery) has increased, and expected returns have decreased, making it difficult to deploy additional funds. The bank plans to maintain existing investments but respond conservatively to further capital deployment.

A Woori Bank official stated, “There is a directive to be cautious with PI (proprietary investment) to secure capital capacity for mergers and acquisitions (M&A). This is not about completely stopping investments but reducing them due to unfavorable market conditions.”

Woori Bank has been investing through fund-of-funds. However, it is now more likely to reduce its investments going forward. The increase in direct investments is also considered a contributing factor. In June 2018, Woori Bank established a system for direct investment in small and medium enterprises (SMEs), and through nine public offerings by the first half of this year, it invested approximately KRW 80.7 billion in 83 companies.

Domestic small and medium-sized venture capital firms securing private LPs are facing an emergency. As the investment amounts and ratios from major domestic policy fund institutions such as Korea Venture Investment Corp., Korea Growth Investment Corp., and the Agricultural Policy Insurance Finance Service?so-called anchor LPs?are decreasing, the news that major commercial banks, which hold a significant share in the private sector, are closing their investment doors is deepening concerns.

A representative of a venture capital currently raising a fund said, “If major commercial banks, which play a significant role in the private sector, close their wallets, fund managers will inevitably face difficulties in forming funds.”