[Private Credit Boom]② Both LPs and GPs Go All-In... Supply and Demand Open Up Simultaneously

Major LPs Have Invested in Overseas Managers for a Decade
As Experience Builds, Domestic Allocations Are Increasing
GPs Move Quickly with New Entities and Expansions
Growth Potential Rises with Demand from Mid-Sized and Smaller Firms

Private credit is beginning to establish itself as a new funding infrastructure in South Korea. While it has already grown into a key capital provider filling the gaps left by banks in the United States, experts say that the necessary conditions are only now aligning in Korea, signaling the start of a full-fledged market expansion. As institutional investors (LPs) such as pension funds and mutual aid associations, as well as private equity fund (PEF) managers (GPs) responsible for executing loans, are entering the market with genuine intent, the contours of the industry are becoming clearer.

LPs with Overseas Experience Increasing Domestic Allocations

Domestic pension funds and mutual aid associations have already accumulated ample experience with private credit investments overseas. Over the past decade, by committing capital to global private credit fund managers, they have recognized the benefits of stable cash flows and low volatility. The ability to design interest rates and risk factors more precisely than banks, and the appeal of a "mid-risk, mid-return" profile-especially as market uncertainty increases-are key reasons why LPs favor these investments.

This experience has sparked movement in the domestic market as well. When IMM Credit & Solutions, a sister company of IMM Private Equity, completed the formation of its first blind fund worth 953 billion won at the end of June last year, major domestic institutional investors such as the National Pension Service and the Korea Post were among the 31 participants. The National Pension Service established a dedicated private credit investment team last year. The Teachers’ Pension increased its allocation to private credit from around 20% in 2024 to 40% last year. The Korea Local Finance Association also plans to raise its private credit allocation to 33.5% by 2029. Through organizational restructuring, it reduced its real estate asset team and doubled its private credit teams.

Major GPs Launching and Expanding Credit Businesses

Domestic GPs are also expanding into private credit as a new growth engine in response to changes in corporate funding environments. IMM Credit & Solutions launched in September 2020 as Korea's first credit-focused house. By building a track record with investments such as HD Hyundai Heavy Industries exchangeable bonds (EB), it has grown its assets under management to approximately 3 trillion won. In 2021, Glenwood Private Equity and VIG Partners each launched Glenwood Credit and VIG Alternative Credit, respectively.

Stick Investment upgraded its credit department to a full-fledged credit division this year, elevating its head from department chief to a representative-level executive. This move signals a full-scale entry into the private credit market. Praxis Capital also formally established its subsidiary Praxis Credit & Solutions last year, expanding its deal pipeline in mezzanine and structured finance beyond traditional private equity.

Private equity firms have adopted this strategy as traditional buyout deals have declined and negative sentiment toward PEFs has grown following incidents such as the Homeplus case. Private credit, in particular, offers the advantage of adjusting scale, speed, and risk, enabling access to a wide range of companies. As a result, credit is being leveraged as a new "deal pipeline."

Ample Growth Potential Due to Shifts in Corporate Funding Environment

Corporations are also embracing private credit as a practical option. The prolonged high interest rate environment is increasing refinancing burdens, and amendments to the Commercial Act and shareholder opposition have made issuing convertible bonds (CB) or exchangeable bonds (EB) more challenging. Bank lending standards have become stricter, and the approval process is slower. A corporate finance team official commented, "Banks start by asking about collateral, but with private credit, the conversation begins with how to structure the deal."

The domestic private credit market is expected to focus more on mid-sized and smaller unlisted companies rather than large listed corporations. Target companies are those with revenue but insufficient collateral assets or credit ratings, or those for whom bank loans alone are inadequate. A private equity industry insider explained, "There are many companies that, while lacking standardized collateral required by banks, have solid cash flows and scale. The loan market targeting these companies has ample room for growth, which is why many houses are entering this space."