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Private Equity

Korean biotech fund reaps triple-digit return on two Nasdaq-listed firms

Jan 21, 2020 (Gmt+09:00)

South Korea’s $25 million biotechnology-themed fund, launched by Meritz Securities Co. Ltd., has earned triple-digit returns on its 2.7 billion won ($2.3 million) investment in two US companies which went public on the Nadaq during its holding period of less than two years, Meritz said on Jan. 20.


The fund with a seven-year term raised 29 billion won ($25 million) from Korean institutions and a few individual investors in May 2018 as the first biotech blind-pool fund established by a Korean brokerage company.


It has invested a combined 17.5 billion won so far in seven then unlisted companies overseas and South Korea’s HLB Inc. Five of the seven overseas firms are now listed on the Nasdaq.


Meritz cashed out the 2.7 billion won investment in two Nasdaq-listed companies - Constellation Pharmaceuticals Inc. and NextCure Inc. which generated 9.2 billion won in capital gains.


Specifically, Constellation and NextCure returned 181.6% and 119.4% on the investment of 1 billion won and 1.7 billion won, respectively.


The fund co-invested in the US biotech startups with US venture capital firms.


Additionally, Meritz exited the fund’s 2 billion won investment in Korea’s HLB, securing a 53% return, or 3.4 billion won in capital gains.


HLB is the second largest stock on the Kosdaq, Korea’s junior stock market, with a market value of 4.4 trillion won.


Meritz manages the blind-pool fund jointly with two Korean venture capital firms - NS Investment and Paratus Investment Inc.


CUT IN REAL ESTATE PROJTECT FINANCING


The biotech fund launch was seen as part of Meritz’s efforts to cut reliance on real estate project financing on which the South Korean government is tightening regulations.


Meritz derives more than 60% of incomes from real estate project financing.


Under the new government rules, Meritz may have to slash the amount of its payment guarantee on real estate projects by 2 trillion to 3 trillion won, according to brokerage industry sources.


Further, its merchant banking license is set to expire in April. It means the brokerage house may not see as much cash inflow into its cash management accounts (CMAs) as before because it will not be able to provide protection for up to 50 million won per CMA customer without the license.


Meritz has been the only Korean brokerage firm with the merchant banking license and used money from CMAs to fund global alternative investments before sell-downs.


For business diversification, Meritz has been introducing new venture capital funds investing in electronics and other sectors.


It manages more than 100 billion won in venture capital portfolios.


By Ji Yeon Sul


sjy@hankyung.com



(Photo: Getty Images Bank)

Yeonhee Kim edited this article

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