Yeouido financial district (Image courtesy of Yonhap)
SEOUL, Nov. 29 (Korea Bizwire) – Two decades after their introduction to South Korea, Private Equity Funds (PEFs) have transformed from behind-the-scenes investors into influential powerbrokers wielding control over industries ranging from heavy manufacturing to fast-food chains.
These once-reclusive investors, who previously surfaced only for occasional mega-mergers, now command a significant presence across South Korea’s business landscape, managing assets worth 133.9 trillion won and controlling prominent companies in sectors spanning from consumer goods to car rental services.
PEFs are increasingly challenging the traditional dominance of family-controlled conglomerates, or chaebol, in merger and acquisition deals, marking a significant shift in South Korea’s corporate power structure. Beyond mere deal-making, these funds have become crucial players in the capital market, facilitating M&A transactions and revitalizing industries through corporate restructuring.
However, their growing influence has not come without controversy. Critics accuse PEFs of “predatory” management practices, focusing solely on investment returns, leading to increasing tensions with labor unions.
As of late 2023, South Korea’s PEF industry has grown to encompass 1,080 funds with total commitments of 133.9 trillion won – equivalent to 39% of Samsung Electronics’ market capitalization and exceeding that of SK Hynix. Including non-management participation funds, the total reaches 1,126 funds with 136.4 trillion won in commitments.
The industry’s “Top 5″ players – Hahn & Company, MBK Partners, STIC Investment, IMM Private Equity, and IMM Investment – control several household names, including Namyang Dairy (Hahn & Company), Osstem Implant (MBK), SK Rent-a-Car and Burger King (Affinity), and Hana Tour (IMM PE).
A study by the Korea Capital Market Institute (KCMI) found that companies exiting PEF ownership saw an average 35% increase in value during the investment period, demonstrating the funds’ ability to boost corporate value.
The sector’s rising prominence was highlighted in May when UAE President Mohamed bin Zayed Al Nahyan met with representatives from major PEF firms like Hahn & Company and IMM PE following discussions with traditional business leaders, including Samsung Electronics Chairman Lee Jae-yong – an unprecedented recognition of their growing influence.
Yet challenges persist. MBK Partners’ recent involvement in governance disputes at Hankook & Company and Korea Zinc has intensified concerns about the role of PEFs in corporate control battles. As third and fourth-generation chaebol families face diluted ownership stakes, their companies become increasingly vulnerable to external acquisition attempts.
Labor relations remain a significant hurdle. When private equity firm KCGI agreed to acquire Hanyang Securities in August, the company’s union organized protests, expressing concerns about potential real estate sales and job security. Similarly, MBK Partners faces ongoing conflicts with unions and local communities over its sale of a significant number of Homeplus stores and the planned spinoff of Homeplus Express, the company’s supermarket division.
“PEFs initially maintained a low profile due to negative public perception,” notes professor Shin Jhin Young from the Yonsei School of Business, who heads the KCMI. “However, as stakeholder engagement becomes increasingly crucial for value creation, these funds need to enhance their external communication capabilities.”
M. H. Lee (mhlee@koreabizwire.com)
