The GPFG is the world’s second largest sovereign wealth fund, at $610 billion AUM. Currently Asian investments make up only 15 percent of the fund’s assets under management. According to the article, the fund has plans to shift its exposure away from Europe and upping assets allocated to Asia.

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This table showing the top 5 deals announced during Q1 featuresthe Marubeni, POSCO and STX acquisition of a 30 percent stake in the Roy Hill iron ore mine standing head and shoulders over the rest, valued at $3.6 billion. The Roy Hill deal leads Samsung Electro-Mechanics intra-conglomerate sale of a 50 percent stake in Samsung LED to Samsung Electronics and Korea ExIm Bank’s sale of it’s 6.25 percent interest in KEB to Hana Financial.

Mergermarkets aptly named “Heat Chart” provides a prediction of which industries will see the most M&A activity over the coming months. As was the case in the 2011 Roundup, the Industrials and Chemical sector and Technology sector are expected to see the most action.

To get a more in depth picture of the Korean M&A market, take a look at mergermarket’s complete report here.

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It has been nearly 7 years since the establishment of the first PE funds in Korea and in that time, Korean funds have grown to reach 30 trillion won, almost half the size of the investment banking market, The industry has not just grown quantitatively, but has also advanced another step in terms of human resources and competitiveness. However, some say further globalization of the industry is being prevented by government regulation and domestic LPs’ attempts at reducing fees for managers.

According to the Financial Supervisory Service, at the end of January, the total amount of private equity funds in the market reached 33 trillion won. This represents a 40 percent yearly increase over the 5 years since the end of 2006. Considering that average commitments to PE have been roughly 6 trillion won annually since 2008, it’s expected the market will reach 50 trillion won by 2014.

The main reason for the fast growth in the scale of private equity in Korea has been the larger portion of investments being allocated to alternatives by large institutional investors, such as pensions. Korea’s National Pension Service (NPS), the biggest domestic pension fund, has decided to enlarge commitments to alternatives, from 5.7 percent in 2011 to 10 percent by 2016, Investments from foreign funds such as CalPERS (California Public Employee Retirement system) and Singapore’s sovereign wealth fund, Temasek, are also following suit.

The performance of the early Korean PE funds has also been respectable. Korea’s first PE fund ‘Mirae Asset Partners #1′ which received a return of 241.5 billion won on its 129.7 billion won investment, is a representative example,

As more money enters the market, the number of “mega PE funds” is increasing. Large funds including MBK Partners and KDB’s captive PE fund, which have more than a trillion won in commitments are expected to grow from 9 as of last year to 15 this year. Korea’s largest fund, KDB PEF is planning to grow from from 5.3 trillion won to more than 6 trillion won in an attempt to become number 1 in the Asia-Pacific region.

National PEFs are also increasingly involved in big international and domestic deals. Mirae Asset PEF took control over Acushnet, owner of well-known golf ball manufacturer, Titleist. When Woori Financial Groups went under and disposed of its assets, MBK partners was the sole bidder while other financial groups did not participate at all.

Total yearly commissions for Korean PE funds are about 450 billion won, roughly half that of the investment banking industry. It is forecast that by 2015, total commissions in the private equity industry will reach 700 billion won.

Despite the rapid growth of the industry, many point out that the investment climate is still lacking. The main concern is the commission system of pensions such as NPS. International LPs generally pay around 20 percent of total returns if the investment returns exceed a hurdle rate of usually 8 percent. However, domestic pension funds only provide 20% of returns in excess of the hurdle rate.

Management fees are also said to be another problem. According to a 2011 report by Preqin, the average management fee is 2 percent internationally. Even in Asia where funds tend to be smaller, 90 percent of funds collect at least 2 percent in management fees. However domestic PE funds only receive an average of 1.3 percent in management fees.

Korea’s tax system is also said by many to be preventing the globalization of Korea’s domestic PE industry. No tax burden falls on international funds investing in Korea when they pass on capital gains to foreign investors. However, domestic funds are taxed 5-16.5 percent when investing locally.

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Since the regulatory changes, Korea has seen the creation of 17 hedge funds managing some 500 billion won. In particular the article makes note of the hedge fund’s low 1.5 percent returns, comparing them with the 15 percent increase in the Kospi.

The article concludes that some regulatory hurdles remain which are holding the new industry back. Rules barring all but large financial institutions from forming funds, restrictions on the minimum investment amount by retail investors, rules restricting leverage, and lack of experience by local managers are all assigned blame in the article.

However, given that it has been less than 6 months since hedge funds started operations in December of 2011, a period of adjustment is to be expected. According to estimates by the Korea Institute of Finance, hedge fund’s assets under management could increase to 13 trillion won over the next two years.

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According to the press release, Lee most recently served as KIC’s Managing Director and Head of Private Markets Group, but brings with him experience from working at Korean PE firm, STIC Investments, Samsung Life Insurance, and the International Finance Corporation.

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In 2010, KoFC contributed 1.44 trillion won to private equity funds totaling 3.17 trillion won.  As of December of last year, the funds had an average exhaustion rate of 33 percent. In 2011, KoFC drastically reduced allocations to private equity, investing only 400 billion won.

It is expected that the amount KoFC invests in private equity in December will be greater than last year, however it will likely be less than 2010, not quite reaching 1 trillion won. Some experts are predicting an allocation of between 400 to 800 billion won.

KoFC is also currently contemplating a reduction of its maximum commitment limit from 70 percent to 50-60 percent, or possibly extending the fund raising time limit to make it easier for managers to match KoFC’s commitments.

An investment banker interviewed for the article said, “There is a lot of capital loose in the market. Adding extra funds to the private equity market could prove difficult and KoFC is likely worried about this.” The source went on the say that if KoFC finds that the amount of funds yet to be invested is unacceptably low, it may push back its commitment until next year.

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Could you introduce Fast Track Asia?

Chester Roh (Ablar), Hyun Sung Shin (Ticket Monster), Stonebridge Capital, and Insight Venture Partners are the main partners. Chester Roh and Hyunsung Shin are investors and participate as advisers. I represent Stonebridge Capital and Dan Francis represents Insight Venture Partners on the board of directors. The four of us make up the board committee. Outside of that we have an operations team made up of 13 staff members. Stonebridge is a shareholder in Fast Track Asia and I represent Stonebridge as a board member. We all ended up working together through the Ticket Monster deal, Dan was the investment manager at Insight. We all talked a lot and found that we worked well together, so we decided to team up for Fast Track Asia.

So is Fast Track Asia really more of a venture capital firm?

We actually aren’t a venture capital firm, we’re a corporation and our main activity is startup company incubation.

So, what makes Fast Track Asia different from other incubators?

There are three main differences.

The first is that we have more full time employees than other incubators. Most incubators are started by a small minority of successful entrepreneurs. When one of the companies they are incubating needs, say for example, a marketing director, the incubator would just introduce them to a marketer from their personal network. Fast Track Asia has a full time headhunter on staff that is responsible for maintaining a talent pool. In this way, we can set up PR, HR, finance and even the development team. We have invested a lot of resources into making a system to handle this function.

The second difference is that our companies don’t have to worry about money. In Fast Track Asia, if companies grow according to scheduled milestones, there is no need to worry about funding. In our program, at each stage, Stonebridge and Insight Venture Partners will provide investments. From the first 100 won, all the way up to tens of billions of won, we can take on the full cycle.

The third difference is that we don’t exclusively target tech companies. There are so many business models, but we are focused on those that can be accurately and quickly put into action. Because of this, we can’t incubate a company like Enswers.

Given that your name is Fast Track Asia, what do you see your direction being in terms of the markets you address? Are you open to taking your companies to North and South America and Europe or will you focus just on businesses that work in Asia, or only in Korea?

Fast Track Asia is an incubator, but we are an incubator with a very practical sensibility. In the domestic media, everybody is talking about guys like Y-Combinator but in reality, if you look to Europe and other countries, there are a wide variety of different types of incubators. So we thought, practically speaking, “Can we take this incubating service and go all the way to America?” We are mainly targeting Korea, Japan, and South East Asia. Because China is so large, it’s difficult to talk about. Extending from Korea to Japan? That can be done relatively quickly. We are launching a company, Good Doc and a Japanese version will be ready to launch in Japan soon. Going to South East Asia won’t take too long either and we plan on expanding in this order.

I have heard some make comparisons between Fast Track Asia and Rocket Internet. Do you see yourselves as the Korean version of Rocket Internet?

There is one entity behind Rocket Internet. Rocket Internet’s portfolio companies’ equity structure is different from ours. I can’t get into the numbers but Rocket Internet applies a single rule to its portfolio companies but we are very flexible. I’m not trying to disparage them at all, I think their business model is great and one of many viable models. However, if we were to try to be like Rocket Internet, we would have to select three to four business plans per year and launch them in around 30 countries simultaneously and expand very quickly. That requires a lot of capacity. While we worked on the Ticketmonster deal, we felt that we could never do what they’ve done. The Korean market is a little strange. We felt that there are some business models that should have been tried that haven’t yet. We are going to try to take these models and successfully execute them with the best personnel that Korea has to offer.

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Ian Mackie, the Chief Investment Officer and Head of Asia Private Equity for LaSalle Investment Management, a real estate investment management firm, sees future real estate opportunities in Korea.

“The European financial crisis presents both risk and opportunity for real estate investment,” Mackie said in an interview with MK Business News this week. “For the next two years, the real estate sector will be adversely affected by Europe’s debt crisis. However, the crisis could offer a window of opportunity for investors to purchase core real estate assets as affordable prices.”

Mackie was referring to assets with low risk factors and guaranteed stable incomes, like the landmark buildings in Gangnam.

“There is an oversupply in the market for offices in Seoul, but if you look closely at the core assets, it isn’t enough to keep up with demand. If you don’t care much about the two to three years of short-term ebb and flow in the real estate market, you can find many attractive investment opportunities.”

He pointed to three or four star business hotels as examples of opportunities.

“More and more Chinese tourists are boosting not only the Korean tourism industry but also that of other Asian nations. I see an increasing number of Asian tourists from Japan, India or Singapore to Korea, which makes pay attention to Korean hotels,” Mackie said, adding that he considers the real estate markets of Japan, China and Australia particularly promising.

LaSalle Investment Management currently handles real estate assets worth $47.7 billion worldwide, including assets worth $8.9 billion in the Asia-Pacific region.

 

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A group of companies and associations including Anysolution, Golfzon, Silicon Works, D&T, Shinwoo Industrial, Intek Plus, K-Mac, Wiworld, the Daejeon Small and Medium Business Support Center and the Daedok Innopolis Venture Association began the initiative to form the firm. Anysolution CEO Jang Youngbok has been chosen to lead the fund.

The article mentions that in 2000 there were 147 venture funds in Korea but by 2011 there were only 103 and of these, there are only 4 associated with local governments.  Last year Korean venture capitalists invested over 1.9 trillion won however, 71.5 percent was invested in the capital region and 11.1 percent in the 5 metropolitan cities. The Daedok fund has been established to try and alleviate venture capital’s focus on the Seoul region.

“We want to provide ‘smart money” to hi-tech companies in the area.” Jang said of the fund. The article also emphasizes that Daedok Investment isn’t just looking to exit through IPO. They intend to help startups with strong technology that are having difficulty securing capital.

The fund has raised nearly 30 billion won from its investors which include the Daejeon Small and Medium Business Support Center, the Chungnam Techno Park, the KoFC’s Korea Venture Investment Employment Fund, the Korea Scientists and Engineers Mutual Aid Association, as well as from the GP Daedeok Investment.

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