LB Private Equity posts 65% return via secondary, mezzanine

LB Private Equity Inc., a South Korean PE firm specializing in secondary and buyout investments, has liquidated its 120 billion won ($93.4 million) blind pool fund with a 65.3% of gross internal rate of return (IRR), according to investment banking sources on May 13. The net IRR, excluding management fees, performance fees and other costs from the gross IRR, reached 54.3%.

Last Friday, the PE firm decided to liquidate its second blind pool fund earlier than the initial liquidation schedule. The fund was formed in 2017 and has received an aggregate 121 billion won investment from the state-run Korea Development Bank (KDB), government-backed Employment Insurance Fund, NH Investment & Securities Co., Seoul National University Foundation Inc., KDB Capital Corp. and other investors.

The PE firm has invested 95.7 billion won in five local companies. It employed secondary investment strategies for HYBE Co., the label behind K-pop sensation BTS, and EcoPro BM Co., a leading battery material maker.

In addition, the PE firm bet on mezzanine securities in Dukeun Interline Refinery Co., an oil refiner, SMK T&I Inc., operator of shoes distributor Shoemarker, and SoCar Inc., a car-sharing platform backed by conglomerate SK Inc.

LB 2017 PE II

Target firms	Time of investment	Investment amount	IRR
HYBE	Sep. 2017	18.9 billion won	385.1%
EcoPro BM	Dec. 2017	21 billion won	51.5%
Dukeun Interline	Dec. 2018	10.8 billion won	9.6%
SMK T&I	Jan. 2019	22.7 billion won	8.5%
SoCar	Feb. 2020	20 billion won	12.7%

LB 2019 PE III

Target firms	Time of investment	Investment amount
Toss Payments	Aug. 2020	40 billion won
Clean Korea	Jun. 2021	44 billion won
KOC Electric	Sep. 2021	53 billion won

The PE firm posted a 385.1% of return from HYBE, into which it injected 18.9 billion won in September 2017. LB Private Equity also gained a 51.7% of return from a 21 billion won investment in EcoPro BM in December 2017.

The PE manager also posted a 9.6% return from Dukeun Interline Refinery, 8.5% from SMK T&I and 12.7% from SoCar. All the three return rates from the mezzanine investments exceeded the 7% hurdle rate, the minimum target rate of return required from investment.

LB Private Equity was spun off in 2017 from Korean investment manager LB Investment Inc. LB Investment, originally founded as a venture capital firm of conglomerate LG Group in 1996, was also spun off from LG in 2008.   

Since its foundation in 2017, LB Private Equity has set secondary investment as one of its core strategies. At the time, Chief Executive Nam Dong-kyu expected that Korea’s secondary PE market will grow fast as exit sizes are low compared with increasing PE investments.

The PE firm is managing its third secondary fund with 122 billion won, which also covers buyout investment in local electric transformer maker KOC Electric Co. and oil refinery Clean Korea. LB Private Equity is set to create the fourth blind pool fund with up to 500 billion won in the second half of this year.

Write to Chae-Yeon Kim at why29@hankyung.com
Jihyun Kim edited this article.