2020.08.08(토)

전체기사

Independent PE firms unhappy with criteria for external managers KDB and K-Growth will use quantitative criteria to earmark 880 billion won

Translated by Kim So-in 공개 2020-02-21 08:00:16

이 기사는 2020년 02월 21일 08:00 더벨 유료페이지에 표출된 기사입니다.

South Korea’s private equity (PE) firms seem dissatisfied with Korea Development Bank (KDB) and South Korea's state-led fund of funds manager Korea Growth Investment (K-Growth)’s quantitative criteria for selecting external managers for their first investment program of the year.

According to investment banking (IB) industry source on Wednesday, KDB and K-Growth will close applications for its external managers on March 3 to provide PE firms with a combined 880 billion won of capital.

South Korea PE firms have been preparing to receive commitments from the anchor investors since the beginning of the year, securing letter of commitment (LOC) and meeting with limited partners (LP) who can make matching commitments. Some PE firms already have kicked off their fundraising process.

However, some in the PE industry express concerns about the quantitative criteria. Particularly, some independent PE firms complain about the provision that affiliates can provide a maximum of 20 percent of the total commitments, which puts PE firms under financial holding companies more favorable position.

“The PE firms that I’ve met recently say in common that the fundraising process is going to difficult. Particularly, mid-sized independent PE firms complain that it is impossible for them to compete in receiving LOC with PE firms who are affiliates of financial holding companies,” said an IB industry insider.

A standard on incentive payments is also one of the complaints. The general partner (GP) commitment of the fund is a minimum of one percent of the total fund. Newly formed and mid-sized PE firms say that PE firms backed by their holding companies will dominate incentives on excess commitments thanks to their huge amount of total assets.

Some PE firms who received anchor commitments last year and have not formed a fund yet may participate in this investment program as well. If this is the case, the situation will be more unfavorable for new and mid-sized PE firms who try to form blind-pool funds for the first time this year.

Some point out that it would have been an inevitable decision for KDB to set such criteria to secure funding certainty. In fact, there still are several PE firms that were selected as external managers by anchor investors last year but failed to match limited partners (LP)’s funds. In this context, KDB decided to set a hard cap (maximum fund size) this year.

(By reporter Choi Ik-hwan)
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