Korean PE funds shrink in 2023 for first time in 7 years

South Korean private equity investments declined last year for the first time since 2016 due to interest rate hikes, high inflation and the Korean won, which at one point fell to its weakest level against the US dollar, Korea’s financial watchdog found.

Korean PE funds that manage institutional investors’ capital invested 32.5 trillion won ($23.4 billion) in 443 domestic and overseas companies last year. That's 11.9% less investment in 25% fewer firms from a year earlier, according to the Financial Supervisory Service on Tuesday.

Korean PE investments in overseas markets plunged 64.9% to 4 trillion won last year. Investments in domestic private markets rose 11.8% to 28.5 trillion won, which included the MBK Partners-Unison Capital Korea consortium’s acquisition of dental implant maker Osstem Implant Co. for 2.5 trillion won.

It was the first year for Korean PE funds’ capital injection to drop since 2016, when global financial markets were hit by Britain's referendum on its European Union membership.

High rates impacted PE managers’ fundraising, and the strong greenback made cross-border M&As more difficult, private market sources said.

“Elevated interest rates challenged acquisition finance, resulting in a reduction in private market investments,” said Samil PricewaterhouseCoopers deal division head Min Joon-seon. “Increased uncertainties in rate policy also negatively affected PE investments,” he added.

Investors’ tepid interest in some large M&As further slowed new investments.

MBK has strived to divest a supermarket chain unit of Korean hypermarket operator Homeplus, which the North Asia-focused fund bought for 7.2 trillion won from British retail giant Tesco PLC in 2015.

Market insiders said the sale won’t be easy as Homeplus posted an operating deficit last year for the third straight year.

Seoul-based IMM Private Equity has postponed its sale of Able C&C, the parent of Korean low-priced cosmetics brand Missha, since 2022 due to the companies’ sluggish earnings.

The PE acquired the beauty products maker for about 400 billion won in 2017 and has seen the company’s market cap shrink to 260 billion won.   

Market watchers expect Korean PE managers to resume investing once interest rates fall, as the dry powder — or cash reserves held by private market investors — increased 33% on-year to 37.5 trillion won as of the end of 2023.

PE investment in the domestic market could rebound this year as Korea’s No. 2 conglomerate SK Group is ramping up the restructuring of its affiliates, including a planned merger of oil refiner SK Innovation Co. with energy unit SK E&S Co.

The merger, if successful, is expected to create the country’s eighth-largest company with total assets of 106 trillion won. 

Write to Ik-Hwan Kim at lovepen@hankyung.com
Jihyun Kim edited this article.