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Institutional Investor Profile: Seong C Gweon, CEO, Korea Venture Investment Corporation
07/02/2007. Source: AltAssets. 
Seong C Gweon on the Korea Venture Investment Corporation's investment strategy, its focus on venture capital funds and on why the private equity market in Korea is in a growth phase.  Korea Venture Investment Corporation is a fund of funds management company, incorporated in June 2005 as a wholly owned subsidiary of the Small Business Corporation (SBC) of Korea. Its main investment vehicle is the Korea Fund of Funds (KFOF), which has received a commitment from the Korean government. By 2009 the government will have invested $1bn in this fund of funds.
Currently KVIC consists of 25 people with diverse backgrounds, such as principal investment, investment and commercial banking, accounting, risk management, and private equity market research. The team is based in Seoul.
Seong C Gweon, CEO of KVIC, has 15 years of investment experience in various asset classes. Currently, he is also one of nine members of the Board of the Governors of the Korea Investment Corporation. Prior to joining KVIC, he was CEO of the Korea Investment Management Company, vice chairman of the Asset Management Association of Korea, and a member of the KOSDAQ Listing Committee. He previously also worked for Merrill Lynch in the US as portfolio manager.
What type of investments do you look for?
'We target investments in top-tier venture capital funds in Korea, focusing on rapidly growing industries. However, we also plan to invest in a broad range of asset classes, from venture capital to mid-buyout.
To date we have committed to invest in 46 funds, mainly venture capital funds.
By geography, most of our investments are and will continue to be in Korea, but we are planning to extend our geographic reach outside of Korea, and make selective investments across the region.'
Do you invest directly?
'No. We only invest in funds at the moment. However, we will consider co-investment and direct investment opportunities in the future.'
What size of investments do you make?
'We can invest between $2m and $50m per fund. Our average allocation to date has been approximately $8m, because so far we have focused on investments in venture capital funds. We like to reserve some flexibility and adjust investment sizes to the relevant investment opportunities.'
How does your investment process work?
'First, KVIC reviews a potential GP's proposal, focusing on the teams, strategies, and exit plans. KVIC then performs due diligence including reference checks, company visits and management interviews for the pre-qualified GPs. Finally, our committee makes a definite decision. Following the investment, monitoring allows us to evaluate performance.'
How many investments do you intend to make over the next year?
'The total amount of capital we have available to invest in 2007 is $170-180m.'
How do you find out about good investments?
'We believe we have a pro-active research system that allows us to keep track of the top players in the market and their returns.'
What is your appetite for first-time funds?
'We have three first-time funds in our portfolio. Each of the three funds is managed by a team consisting of former venture capitalists and investment bankers. We will continue to look at first-time funds. As with all our funds, the team needs to be right and the strategy needs to fit.'
Would you consider acquiring an LP stake in a fund from a fellow LP?
'To date we have not made any secondary investments. However, the situation will be different depending on the terms and conditions in the future.'
What do you look for in a good private equity manager?
'In addition to proven track records and sound strategy, comprehensive due diligence
capability is an important consideration in selecting a good GP.'
Why would you reject a fund?
'Lack of a clear strategy or lack of a traceable track record, for example.'
How do you conduct your due diligence?
'We usually conduct quantitative evaluation on a variety of factors that we think are important. We then meet with the target's management to complete the qualitative evaluation.'
What is the biggest issue in the private equity industry?
'In the wake of the Asian financial crisis, foreign private equity firms were initially welcomed into the country with open arms. Above all, given their ability to breathe life into ailing companies, such firms were seen as the potential saviours of the Korean economy. Banking assets in particular were picked up on the cheap and, in some cases, sold on a few years later for handsome profits.
In the light of such successes, foreign private equity firms found that the pendulum of public opinion has swung against them. A number have found themselves the subjects of investigations into the propriety of the deals they have been involved in - particularly in relation to alleged tax evasion. In the most publicised case, Texan investment group Lone Star has seen a number of its executives hauled before the Korean authorities to account for their actions during the firm's acquisition of Korea Exchange Bank in 2003. The investigation, which is ongoing, seeks to discover whether officials of Lone Star and KEB acted to drive down the price of the asset.
However, one should not necessarily conclude from such developments that Korea is 'anti-private equity'. In fact, since private equity funds were first officially recognised as investment entities by the introduction of regulatory changes in December 2004, the domestic industry has been blossoming. A November 2006 report by the Korean Financial Supervisory Service revealed that there were, at that date, some 20 private equity funds, an increase of five since the beginning of that year. Also, it is estimated that there are about 15 local fund managers managing about $6bn (based on commitment) in this country.'
How would you describe the market environment in which you are operating?
'After the internet bubble burst in 2001, the Korean government adopted new measures to promote the venture capital industry. As an example, the KFOF was set up to facilitate a more favourable environment for venture investments, resulting in more players in the market.
Two-year-old measures to invigorate the local private equity industry have been working smoothly. This is why we are hopeful about the future of the small and mid-size deals, a segment in which local players may not necessarily have to compete with global players.'
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