KRW 4.5 Trillion... Private Equity Firm Breaks the '1% Own Money' Rule and Profits from Pure Proprietary Investment

KKR Sells USI, Achieves Sixfold Return on Initial Investment
Held for Nine Years Using Only Proprietary Capital, No Outside Investors
A "Warren Buffett" Style of Investing Using Only Corporate Funds

Global private equity firm KKR announced on September 1 (local time) that it has agreed to sell US-based insurance brokerage USI Insurance Services to peer company Aon. The transaction is valued at approximately USD 17 billion, or KRW 23.3 trillion. Of this, KKR expects to take home USD 3.3 billion, or about KRW 4.5 trillion, after taxes. Based on its initial capital investment, KKR realized a sixfold return.

This news has sparked discussion in Korea's private equity fund (PEF) market. The reason: KKR held its stake in USI using its own corporate capital, rather than through an investment fund.

Typically, private equity firms raise capital from institutional investors such as pension funds, mutual aid associations, and insurance companies to create investment funds. They use these funds to acquire companies, manage them for several years, and then sell them. The share that fund managers invest alongside external investors is usually about 1% of committed capital. This arrangement, known as the GP commitment, ensures that the general partner has skin in the game. For a KRW 50 billion fund, the firm’s own investment would be KRW 500 million, with the remaining KRW 49.5 billion coming from institutional investors.

During the investment period, the management company earns an annual management fee of 1–2% of assets under management. When they sell a business at a profit, the firm takes around 20% of the returns above the promised minimum rate of return (typically around 8% per annum) as a performance fee. Because most of the capital comes from external sources, most of the profits are also distributed to those outside investors.

If it had been a fund, holding period would have been 5-7 years... Using its own capital, KKR held for 9 years and acquired 90 companies to maximize returns

KKR adopted a structure that deviated from the usual approach. In 2017, together with Canadian pension fund CDPQ, KKR acquired USI for USD 4.3 billion, but instead of using fund capital, KKR used its own corporate funds. The actual amount and ownership percentage KKR invested were not disclosed. KKR increased its ownership by injecting additional capital from its own balance sheet in 2020, 2023, and 2025.

KKR held onto USI for nine years. During this time, it acquired and consolidated over 90 smaller insurance brokerages into USI. This continuous acquisition of smaller companies is a typical scaling-up strategy, but if it had been a typical fund investment, the holding period would have expired. KKR reported a sixfold return on its initial investment, and a 3.4-fold return including additional capital injections. While the exact investment and ownership structures have not been disclosed, the recovery amount and multiples suggest that approximately USD 1 billion (about KRW 1.4 trillion) was invested, with USD 3.3 billion (KRW 4.5 trillion) returned.

This approach is termed the “Mini Berkshire” strategy by the market. The model is to acquire companies directly with corporate capital, hold them for an extended period, and profit from dividends—emulating Warren Buffett’s Berkshire Hathaway. Berkshire itself owns insurance companies, including GEICO. Insurance companies receive premiums upfront and pay out claims much later, allowing them to invest the accumulated float in the interim. Buffett used this cash flow to acquire businesses and grow Berkshire Hathaway, without having to sell them for returns.

Major U.S. private equity funds are now establishing similar funding structures. KKR acquired U.S. insurer Global Atlantic in 2020, Apollo acquired retirement insurer Athene, and Blackstone purchased a stake in AIG. Life and pension insurance funds have payout horizons stretching decades into the future, and their promised rates to policyholders are lower than the annual 8% typically targeted for fund investors. With this type of long-term capital, management companies can allocate more capital to attractive businesses and are not rushed by fund maturity deadlines, allowing them to wait for optimal exit timing. Such funding structures provide greater flexibility in investment strategies.

VCs in Korea are increasing proprietary investment... "Maximizing future returns and building LP trust"

This trend of managers increasing their proprietary capital is also emerging in the Korean capital market. However, it is seen more in the venture capital (VC) sector than in the PE market. In the buyout market, where transactions often exceed several hundred billion won per deal, managers would need substantial capital reserves to acquire companies solely with proprietary funds. An investment banking industry source commented, "Few Korean management companies are able to deploy several billion won from proprietary capital alone, and most large managers remain unlisted, limiting their ability to issue shares and build capital reserves."

Venture capital firms, which operate at a smaller scale, find it easier to use their own capital. For example, of the KRW 50 billion committed to Capstone Partners’ 'Capstone 2026 AI Innovation Venture Fund' established in April, KRW 9.9 billion came from the company’s own capital—a share 20 times the legal minimum (1%) required for venture investment funds. Daesung Startup Investment invested 38% of its own capital in 'Daesung W-Jump Up' and 23.6% in 'Daesung Together Youth Startup.' Woori Venture Partners maintains a GP commitment ratio of around 15%. In the 'KTBN No. 13 Venture Fund' formed under the former KTB Network, the firm invested KRW 10 billion out of KRW 51 billion, for a ratio of 19.6%. This fund, along with KTBN No. 16, invested KRW 4 billion in Dalba Global in 2019, and in May last year sold its stake for KRW 39.9 billion, making a profit of KRW 35.4 billion.

The expansion of VC proprietary capital is also influenced by the power dynamics within the industry. Injecting substantial proprietary capital helps build trust with institutional investors for future fundraising. A venture capital industry representative noted, "Although there is plenty of money circulating in the market, increasing polarization by size and sector has made fundraising more difficult. Expanding proprietary capital not only maximizes profits from exits but also positively impresses LPs in the fundraising process, so it is a growing trend."

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