[Private Lending Boom]②"Companies Face 'Poverty Amid Plenty'... Ample Opportunities for Private Credit"

Interview with Han Younghwan, Vice President of VIG Partners

Although the peak of high interest rates has passed and liquidity has partially recovered, not all companies are benefiting from this trend. As capital continues to concentrate in specific industries and large corporations, the phenomenon of "poverty amid plenty" is intensifying, resulting in a growing number of companies falling into liquidity blind spots. Analysts suggest that this situation is opening up new growth opportunities for private credit lending.

Han Younghwan, Vice President of VIG Partners, shared this assessment in a recent interview with The Asia Business Daily at the company's headquarters in Jung-gu, Seoul. Han leads VIG Alternative Credit, the credit division of VIG Partners. He has deepened his understanding of structured credit fund investments since his time at his previous company, Goldman Sachs Special Situations Group (SSG).

Han explained, "Recently, limited partners (LPs) have been focusing on reducing allocations to equity and increasing the proportion of credit investments. As a result, capital commitments are expected to rise, and a significant amount of dry powder (uninvested capital) will likely enter the market. Since the market is still in its early stages, there is always a shortage of capital and strong demand, but as capital supply increases, investment activity will become much more robust."

He particularly noted that the polarization of the funding environment is expected to drive real demand for private lending. He said, "Companies that can satisfactorily raise funds through traditional methods, such as borrowing from financial institutions or issuing corporate bonds in the capital market, do not need alternatives. However, not all companies are in that position. Unlike banks, credit funds can design customized one-on-one loan structures, and unlike corporate bonds, companies do not have to deal with a large number of unspecified investors, which is advantageous for them."

Han also emphasized that the stable, medium-risk and medium-return structure unique to private lending could be attractive to LPs, as it is not a simple interest income model like bank loans. He explained, "VIG Alternative Credit targets an internal rate of return (IRR) of around 15%. Of this, 5-8% is secured as downside protection in the form of interest, while 7-10% comes from equity investments, which enhance the upside potential." This structure allows for stable returns through interest income, while generating additional profits through capital instruments such as bonds with warrants or redeemable convertible preferred shares (RCPS).

Han assessed that the growth potential of the private lending market is clear. He stressed, "If you look at the sources of funds on a company's balance sheet, there are always more liabilities than equity, and this is a rational structure." He explained that since demand for loan and credit-based financing is structurally inherent, market expansion is a natural outcome.

Han further stated, "In Korea, there are still many credit investments centered on equity, like private equity (PE), but credit investments are different from equity and have a low correlation, which provides a diversification effect for portfolios. There are more things that can be done in credit than in equity, and since this direction has already driven growth in advanced capital markets such as the United States, the domestic market will inevitably continue to expand in the future."

Han Younghwan, Vice President of VIG Partners, is conducting an interview with The Asia Business Daily at the VIG Partners headquarters in Jung-gu, Seoul on the 6th.