Will the Sale of Korea Fund Partners Succeed? Some Raise Concerns Over a Possible Peak

Preliminary Bids Scheduled for Next Week; Valuation Expected to Exceed 300 Billion Won

Disagreements Over Price Tag; Concerns Profit Will Decline if Stock Market Falters

Fund administration company Korea Fund Partners has been put up for sale amid a somewhat sluggish mergers and acquisitions (M&A) market. As the domestic public and private fund market—particularly the exchange-traded fund (ETF) sector—has grown rapidly and performance has improved, private equity fund (PEF) managers looking for financial infrastructure assets are expected to show significant interest. However, there are concerns in some quarters that the recent performance may have peaked. This is because the boom may be temporary, riding on the current ETF market boom, and because the fund administration business itself is not considered to have a strong technical moat.

According to the investment banking (IB) industry on June 5, UBS, which is managing the sale of Korea Fund Partners, plans to hold a preliminary bidding round next week. The shares for sale represent approximately 75-80%, including 65.1% held by PTA Equity Partners and shares held by the second-largest shareholder, Mirae Asset Consulting. PTA EP changed the company name after acquiring management rights of Mirae Asset Fund Service from Mirae Asset Financial Group in 2021.

Korea Fund Partners handles fund administration tasks such as fund NAV calculation, accounting, and administrative work for asset management firms. It serves as a back-office infrastructure asset tied to the overall growth of the asset management industry, including ETFs, public funds, private funds, overseas funds, and alternative investment funds.

Recently, Korea Fund Partners’ performance has steadily improved as the ETF market has grown. As ETF net assets and the number of products increase, the volume of related work, such as NAV calculation, accounting, and subscription/redemption management, also rises. As of April this year, Korea Fund Partners’ assets under administration stood at 558 trillion won. This is more than seven times the 75 trillion won recorded in 2020, just before PTA PE’s acquisition. Last year, the company posted EBITDA of about 24 billion won, and this year it is expected to exceed 40 billion won. For buyout PEs, this is an attractive asset that can generate predictable fee-based cash flows, as opposed to the more cyclical manufacturing sector.

While this is an optimal time for PTA EP to sell, buyers have raised concerns about the high valuation. There are questions about whether the recent surge in profits can be sustained and how much additional growth is possible. The ETF market has grown rapidly in recent years, but this was driven by both a bullish stock market and the launch of thematic ETFs. If the market undergoes a correction or ETF net asset growth slows, the increase in assets under administration and related fee income could also be affected.

The business’s weak technical moat is also a source of concern for potential buyers. Although Korea Fund Partners has a high market share in ETF administration and has developed competitive systems, the business model itself is essentially a back-office operation that handles NAV calculation, accounting, and administrative work for asset managers. While revenue is linked to asset size and the number of products, the company earns by handling large volumes of relatively low-margin work, rather than collecting high fees like fund managers. If asset managers demand lower fees or competitors lower their prices, the current profit margins may not be sustainable.

The head of one PEF management company said, “ETF market growth does not necessarily translate into proportional profit growth, and depending on market conditions, profits could easily reverse. During the sale, the valuation is expected to exceed the 300 billion won set during the recent stake sale, but given the difficulty of guaranteeing continued strong growth, it won’t be easy for buyers to make a quick acquisition.”

This content was produced with the assistance of AI translation services.