Abstract

This paper aims to argue that private equity funds play a critical role in the Korean economy and that their presence, now and in the future is essential. Moreover, domestic private equity funds will be complementary to foreign private equity funds, not a substitute, at least for the time being. In arguing so, we will look into the investment experiences of foreign private equity funds and see how foreign private equity funds have helped transform the economy in the post-financial crisis era. We will also look at the domestic private equity funds market to examine the replicability of private equity-driven growth in Korea. The paper will conclude with further recommendations for the growth of the private equity market. In the past five years or so, Koreans have come to be familiar with names such as Carlyle, Newbridge Capital, Lone Star, etc. These are the names of major foreign institutional investment firms that bought out the Korean domestic banks, Koram Bank, Korea First Bank, and Korea Exchange Bank. Recently, with the incident of the Lone Star scandal disclosed in regards to its acquisition of Korea First Bank, the Korean media have given extensive coverage to the issues relating to private equity funds. Especially after the scandals involving foreign investors, there is public discontent about the large volume of foreign private equity funds, mainly in the financial sector, that seem to 'eat and run' once increased profits have been made. People have scrutinized investments of this kind with critical eyes. Nevertheless, we should acknowledge the contributions that the foreign private equity funds have played in various sectors of the economy in the post-crisis period. Foreign funds have invested in troubled Korean firms, understanding any risks involved, and successfully turned them around for the better. To that end, even if domestic private equity funds that have been set up since 2004 have not yet performed to the market expectation, we have to understand that they have further roles to play as we anticipate growth of the M&A market in the coming years.