[INTERVIEW] 'PEFs adapt better to global disruptions'

Unison Capital Korea Representative Director Kim Soo-min speaks during an interview with The Korea Times at his office in Seoul, Dec. 30, 2021. Korea Times photo by Shim Hyun-chul

Unison Capital Korea interested in e-commerce sector

By Park Jae-hyuk

A massive inflow of global investors' money in recent years has enabled private equity firms (PEFs) to participate more aggressively in multiple mega-size buyout deals here and overseas, prompting market insiders to regard PEFs as the main beneficiaries of the COVID-19 pandemic that has rapidly increased the liquidity of the capital market.

According to investment data provider Preqin, buyout funds in Korea raised a combined $17 billion in 2020 and an additional $5 billion during the first 11 months of 2021.

Unison Capital Korea Representative Director Kim Soo-min, however, denied any correlation between the pandemic and the private equity industry's recent growth, emphasizing that PEFs have enhanced their competitiveness in the M&A market, regardless of the spread of the coronavirus.

"From the viewpoint of investors, private equities are more attractive asset classes, because various studies in developed markets have proven their risk-to-return ratios are better than those of public equities," he told The Korea Times during his first interview after he was appointed last October to chair the PEF Association in 2022.

Kim attributed the results to PEFs' attempts to add value to their portfolios through active long-term investments, which cannot be seen from passive investors depending on short-term trends.

He noted that the recent disruptions in the global industrial orders and the rise in digital technologies allowed PEFs to be more competitive in the M&A market, compared to conglomerates specializing in each of their own businesses.

"Amid the growing uncertainties, strategic investors have remained inflexible in terms of decision-making," he said. "In contrast, PEFs have been able to change their investment strategies quickly, in line with new trends."

Unison Capital Korea has also adjusted its portfolios to follow the megatrends.

"We are recently paying more attention to the e-commerce sector, investing in online shoe seller Sappun and online grocer Oasis Market," Kim said. "We are considering participating in additional deals involving e-commerce firms."

He added that his company will continue to focus on investments in consumer goods, services and healthcare sectors, with a belief that the lifestyle of Korean households will ensure a stable growth of such industries.

"Even though consumers change their behaviors to some degree, they will continue eating food and using services," he said.

Terarosa's ESG strategies

Global investors prioritizing the environmental, social and corporate governance (ESG) factors is another megatrend that has affected Unison Capital Korea's investment strategies.

"We recently invested in Haksan, which operates Terarosa coffee shop chain, because of its potential for growing into an exemplary company in terms of ESG," Kim said. "Its founders have supported farmers cultivating coffee beans in Africa and Latin America, and helped Korean baristas build their careers."

Unison Capital Korea, which acquired a 35 percent stake in Haksan for 70 billion won ($58 million), drew up a budget to systematize the coffeehouse chain's ESG strategies from a long-term perspective. The PEF seeks to discover more companies having the potential for ESG management.

"We are not interested in creating funds themed with ESG, nor establishing departments in charge of ESG strategies," Kim said. "ESG investing without clear goals cannot succeed in the long run."

Unison Capital Korea Representative Director Kim Soo-min speaks during an interview with The Korea Times at his office in Seoul, Dec. 30, 2021. Korea Times photo by Shim Hyun-chul

Support for small-size PEFs

As the representative of the PEF Association, he plans to make efforts throughout this year to attract more firms to join the lobby group, increasing communications among its members to deliver their requests to financial authorities.

In particular, the association is set to give advice to newly established PEFs that are not familiar with managing back offices in charge of regulatory compliances.

Kim said that investment bankers, consultants and certified public accountants, who founded their own PEFs to capitalize on the recent market growth, have suffered difficulties in coping with regulations, as they have specialized mostly in devising investment strategies.

"Newly established PEFs will be able to get more helpful and practical advice from our association than from law firms," he said. "The association also has an internal group of female professionals working in PEFs, because most back offices of PEFs have been led by women."

In response to the lingering negative public sentiment about PEFs, Kim answered that exemplary investment cases will gradually solve this issue in the long run.

Based on the optimism, he mentioned his company's sale of Gong Cha for 350 billion won in 2019, after its acquisition of the milk tea franchiser's Korean operation in 2014 and Taiwanese headquarters in 2017, for a combined 60 billion won. When Unison Capital Korea was managing Gong Cha, the franchiser grew into a global brand having over 1,000 outlets in 17 countries.

"Our investment in Gong Cha was selected by Harvard Business School as a case study, so we have told the business school's students about how we improved the company's valuation," Kim said. "The case of Gong Cha proved that PEFs have not just sought short-term profits from their investments."