Private equity (PE) firms are finalizing their proposals for South Korea’s massive New Deal fund ahead of the deadline on Tuesday (January 26), with more than nine mandates expected to be awarded by the government and state-backed lenders.
State-controlled Korea Development Bank (KDB) and Korea Growth Investment Corp (K-Growth) will receive proposals for PE and venture capital mandates worth a combined 745 billion won ($680 million), industry sources said on January 19.
KDB and K-Growth will award mandates to at least nine managers and possibly as many as 20. Selected managers will face time constraints, as they have to form funds within eight months of the final selections being announced at the end of February.
The Korean New Deal has three main pillars: a Digital New Deal, Green New Deal, and strengthening employment and social safety nets. The six industries related to New Deal policies are DNA (digital, network, AI), green mobility, new deal services, green industry, SOC and smart logistics centers and smart industrial complexes. PE firms are likely to offer funds in the semiconductor, AI, environment and contents sectors.
They are expected to apply for mandates for one of the three funding categories, including funds worth more than 120 billion won and those for new deal growth, because their fund sizes are normally larger than those of venture capital firms.
“Small and mid-sized PE firms are unlikely to flock to the category of funds under 120 billion won because they have to compete with VC firms which have done well in winning mandates,” said an industry source.
The outcome of the race is expected to depend on how well each fund fits in with themes for the Korean New Deal projects.
Managers seem to have started choosing “themes” for their funds. Some PE firms plan to highlight their expertise by combining sectors in which they specialize with themes of the New Deal policy, while others plan to cover a wider range of sectors. Industry observers said larger firms are more likely to choose the latter strategy.
In the new deal growth category, medium and large-sized PE firms with long track records and exit experiences in related sectors are likely to have a competitive edge.
“Firms that don’t have great track records will have difficulty embracing broader themes,” said an industry source, adding, “However, medium and large-sized firms have to have a positive rate of return even if they could cover a wide range of themes.” (Reporting by Ik-hwa Choi)