Following a $34 million fund close in June, HSBC Funds financed a $34 million investment in Korean shipbuilder STC Corp. However, since then HSBC has held two subsequent closings for its HSBC Private Equity Fund 3 Ltd., (HPEF3) totaling $319 million, according to a source close to the firm.
HPEF3 is the fifth HSBC fund with a focus on the Asian region. Concentrating on China, Korea and Taiwan, the fund will hold a final close in mid 2004, and will top out at roughly $700 million. Half the equity in the fund will derive from HSBC’s in-house coffers.
HSBC needed less than a month to pull off another closing after its Oct. 8, $177.5 million close. On Nov. 7, the firm held its second close stemming from LP funds (and third overall), collecting $141.5 million. In previous HSBC Asia-based funds, nearly 80% of LP dollars derived from U.S.-based LPs, but equity collected for HPEF3 is evenly distributed between investors located in Asia, Europe and the United States, according to the source. Another close, expected in mid-December, will push the fund above the $400 million mark.
Newcomers to HSBC and Asia include the pension fund from British Rail, one of the largest pension funds in the U.K., while Colorado Public Employees Association (CoPERA) has re-upped in HSBC’s fifth Asian fund.
Aside from its HSBC investment, CoPERA has exposure in Asia through American International Group, Harbourvest Partners, Hambrecht & Quist Asia Pacific, venture capital firm Walden International and Warburg Pincus. But CoPERA is careful not to expect too much from its Asian investments.
“Private equity has had a hard time flourishing in emerging markets,” said Kevin Kester, director of alternative investments at CoPERA. “Asia offers a lot of promise, but to date, a lot of it has only been promise. We’re actually decreasing our exposure, but keeping a toehold in the market.
“Asia is a major component of the global economy, therefore it’s a place we need to have exposure,” Kester continued, “but we are very selective and cautious about that. This cautious and discerning approach has developed within us over time and we’ve learned from our experiences.”
The CoPERA portfolio totals $27 billion, $2.7 billion of which is allotted to private equity investments. According to Kester, roughly 5% of private equity investments are earmarked for Asia-based funds. “Because we visit the region only once or twice each year, we’re not going overboard in our resource allocation in Asia,” said Kester. “Our preference is to find a few groups that won’t create a partner risk, which we can trust won’t implode. That’s a risk anywhere, but we want to work with GPs where that risk is lessened.”
While CoPERA invests in a variety of private equity shops, Kester said the firm limits contact to the smaller shops by investing in HarbourVest, a fund-of-funds investment firm. “The macro premise for investing is Asia is growth; these economies are growing faster than most developed countries, and we’re also seeing major shifts in manufacturing from the developed western economies to Asian countries, as well as growing consumer demand coming from Asia.”
And while many of the Asian countries targeted by GPs are labeled emerging markets, they are stable when compared to their counterparts in Latin America. “Relative to other emerging markets, most Asian markets that we would consider have a better sense of property rights and more stable political regimes,” said Kester.
Korea is a hotbed for buyout activity of late, including the recent $1.1 billion acquisition of telecom giant Hanaro, by AIG and Newbridge Capital. The Carlyle Group, a late comer to the bidding process, joined with Korean conglomerate LG Group (a Hanaro shareholder) in an attempt to buy the telecom company, but fell short due mostly to timing (see Buyouts 11/03/2003).
A more recent deal includes Hambrecht & Quist Asia Pacific, in which the firm led a rare successful exit of a Korean company in the nearly $300 million sale of Good Morning Securities, a financial services company, to strategic buyer Shinhan Financial Group. H&Q invested in the Korean brokerage at the end of 1998 and realized $200 million on a $30 million investment, according to Ta-Lin Hsu, chairman of H&Q Asia Pacific.
H&Q’s recent deal may help jumpstart its fundraising attempts. According to a source familiar with private-equity investing in Asia, the firm has slowed its fundraising in the midst of placement agent Merrill Lynch’s attempt to raise the $500 million fund for H&Q.
“H&Q is attempting to elicit interest from current investors, and if it does, we will continue on the fund raising path,” said a source close to the firm.