Sangui: "Fostering Mega Funds Over 1 Trillion Won... Support Needed for Corporate Business Restructuring"

The ceremony commemorating Commerce and Industry Day was held on the 31st at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Oh Hyung-gil] There have been calls to strengthen the role of the private equity fund market to enable companies to proactively restructure their businesses.

The Korea Chamber of Commerce and Industry (KCCI) stated in its report titled "Challenges of the Private Equity Fund Market for Revitalizing Business Restructuring," released on the 17th, that "to strengthen the role of the private equity fund market, a mega fund specializing in technology company investments must be nurtured, and corporate-led private equity funds dedicated to overseas investments should be established along with the removal of related funding regulations."

It also pointed out the need to increase collaborative support between small and medium-sized enterprises (SMEs) and private equity funds, enhance private equity funds' risk management capabilities and ESG competencies, and expand disclosure of information related to general partners.

KCCI particularly emphasized market-friendly business restructuring through private equity funds. This is because private equity funds can supply growth capital to technology companies and lead management improvements and mergers and acquisitions (M&A) of investee companies through management rights, thereby contributing to the activation of market-centered business restructuring.

The report anticipated that with the reform of private equity fund regulations, including the abolition of the 10% mandatory equity investment rule and the prohibition on private lending, private equity funds' participation in corporate business restructuring will gradually increase. It also presented additional tasks to strengthen the role of private equity funds in business restructuring.

The report explained, "Active government support is necessary to nurture mega funds at a global level," adding, "Mega funds are private equity funds that specialize in investing in technology companies and operate large-scale capital, maintaining a complementary relationship with technology companies. Overseas, mega funds exceeding $1 billion are in operation."

Domestically, the scale of management participation-type private equity funds is shrinking, and there are no large private equity funds specialized in technology company investments, failing to follow global trends. It pointed out the need for a global-level mega fund exceeding 1 trillion won to support domestic technology companies' business expansion, overseas entry, and M&A.

Furthermore, it added that corporate-led private equity funds dedicated to overseas investments are necessary for domestic companies to acquire overseas technology companies.

The report stated, "To acquire overseas technology companies, which require enormous funds, it is essential to operate corporate-led private equity funds capable of raising investment capital. However, currently, corporate operation of private equity funds is only allowed in a limited manner. General holding companies can establish corporate venture capital (CVC), a type of corporate-led private equity fund, but investment targets are limited to venture companies and SMEs, overseas investments are capped at 20% of total assets, and external fundraising is limited to 40% of the fund size, making it difficult to proceed with large-scale M&A," it elaborated.

Kim Kyung-hoon, a research fellow at KCCI's SGI, advised, "In the era of digital transformation and a low-carbon economy, securing corporate competitiveness depends on the successful transition to technology-intensive and technology-friendly companies. Korea should also establish mega funds specializing in technology company investments and increase investments and M&A in technology companies to promote the growth of small and medium technology companies and the transition of existing companies into technology-friendly firms."

This content was produced with the assistance of AI translation services.