Private Equity Funds grow dominance in Korea


Hello everyone. It’s Frank here. It’s not an exaggeration to say Starbucks is everywhere. It’s round the corner of the streets of your home, your office and your favorite diner. It’s not only Starbucks, but overall franchise businesses are a strong player in the market, causing difficulty for small businesses to survive. Recently among private equity funds, it has become a trend to take over such large franchise businesses in order carve out a place for themselves. What are these private equity funds, and what makes them so attractive?


Private equity fund is a collective investment scheme that is achieved by recruiting investors privately, who then invest capital in underestimated businesses and sell the stocks once the value of the businesses rises. It refers to privately owned and traded stakes in companies that are not subject to public market scrutiny and generally free from federal securities regulation. There are certain standards that must be met in order to qualify as a private equity fund. For instance, in Korea, the number of investors must be under fifty in order to fit the standards of a private equity fund. Investors are usually constituted by corporate investors from insurance companies, banks or financial holding companies with business fundability. Private equity funds are constantly compared with public offering funds, which are open to the public and run by financial institutions. The core difference is that private equity funds are based on free management. While public offering funds have limitations, such as no investing of more than 10% of the total share, public equity funds have no restrictions and investments can be made on any investment targets.

Recently, private equity funds are taking over large franchise businesses such as Starbucks, Burger King, Hollys Coffee and Coffee Bean. What is so appealing about these large franchise businesses? On the contrary to process industries that rake in profits after a certain amount of time, food and beverage industries are a steady money maker. It is less influenced by the global financial crisis, and consumers spend money on food and beverages regardless of the financial outlook. With the current stagnant economy, private equity funds create the opportunity to find the blue ocean that makes profit.

By Ho Jung Min

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