With KKR & Co. L.P. (KKR) and TPG Capital L.P. (TPG) planning to launch large-sized Asia-focused funds this year, expectations are growing that global private equity funds (PEF) would increase their investment in companies in South Korea where foreign investors face fewer barriers to acquire stakes in local companies and to resell or list them to earn returns.
According to sources from the investment bank industry on Thursday, U.S.-based private equity firms KKR and TPG are aiming to form new Asia-focused funds worth $11.5 billion in total in the first half of this year. KKR and TPG are said to have already started to raise funds from global institutional investors for their new funds that are, respectively, worth $7.0 billion and $4.5 billion. The new funds, which are mainly targeting companies in the Asian region including Australia, will be managed by KKR Asia and TPG Asia in Hong Kong, according to sources.
Once launched, KKR’s $7 billion worth Asia III fund will be the largest PEF in the Asian region after KKR Asia II fund worth $6.0 billion, which was created in 2013. TPG’s VII fund will also exceed its previous VI fund valuing about $3.3 billion.
Following the launch of the new funds, the number of funds that each is worth $3 billion or more in the Asian region is expected to reach 11 that also include funds operated by U.S. PEF Carlyle Group, Asia-based Bearing PEA, Affinity Equity Partners and Korea’s MBK Partners. Combined value of the 11 funds is estimated at $46.8 billion, and considering loans and joint investment with pension funds, the total capital available for investment from the funds would reach $100 billion, according to market experts.
Main targets of these funds will likely be companies in Korea, Australia and Southeast Asia. Industry observers said global PEFs are reluctant to make investment in Asia`s two giant economies China and Japan because of strict regulations on IPO and stake acquisition by foreign entities in China, as well as resistance against the handover of management rights to PEFs in Japan.
According to global consulting firm Bain & Company, PEF investment in Japan was 31 cases worth $2.6 billion in 2015, plummeting 64 percent compared to the average between 2010 and 2014.
Against this backdrop, PEFs are reportedly eyeing on Korean companies among Asian firms. An unnamed PEF official said Korean firms that hold a competitive edge against their peers and capability to generate ample cash from running their business are attracting global PEFs. In addition, the weakening Korean won against the U.S. dollar that lowers the prices of company stakes in dollar term is expected to further encourage global PEFs to seek investment targets in Korea.
There are already signs of global PEFs gearing up to make forays into the Korean market. Recently, KKR hired Lim Hyoung-seok, former LG Electronics executive, to run its Korea operations. TPG named Lee Sanghoon, an ex-Morgan Stanley executive, as a partner at the firm to run its Korean office that was recently reopened in 10 years after its withdrawal from Seoul. The largest global PEF Blackstone Group L.P. also recently appointed Guk Yu-jin who works for its Hong Kong office as the Korean partner in a bid to ramp up its investment in Korea.
By Kang Doo-soon and Han Woo-ram
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