Korea Technology Investment Corp, the oldest venture capital concern in South Korea, is now raising money for its first private equity fund.

Korea is being swept by a private equity craze following the lead of Lee Hun-jai, its minister of finance and economy, who is encouraging banks and pension funds to invest in domestic PE in order to reduce the role of foreign players.

Unlike these big institutions, which have zero experience in private equity, KTIC's founder and chairman Suh Kap-soo has been involved in M&A, venture capital and restructurings for two decades. KTIC was established in 1986 and has $37 million in paid-in capital. Other industry players say Suh is the godfather of VC in Korea, a veteran of the old school of doing business in Korea.

While banks will be trying to raise large sums to go after the privatization of Woori Bank and the portfolio of bad-debt workout agency Korea Asset Management Corporation, KTIC is going to make long-term investments in unlisted small- to mid-sized technology companies.

Suh also wants to invest in Chinese state-owned tech enterprises. "I'd like to target China, or form a strategic partnership to buy out SOE shares," he says. "This can benefit Korea and China together: they can get access to Korean technology and we can help loss-making SOEs become profitable."

He hopes to ultimately raise $500 million, but will begin investing with a lower asset base and gradually build up the portfolio. "Even mid-sized deals require tens of millions of dollars," he says. KTIC currently manages around $500 million in its VC portfolios.

Last year the government passed a law allowing Korean investment in private equity funds. VC funds were restricted to deals under seven years, couldn't take more than 50% of a company and were barred from state-owned companies. Private equity funds don't have those restrictions.

For a closer look at Korean institutions' entry into private equity, see the upcoming June/July edition of AsianInvestor magazine.