Korea Extends Olive Branch To U.S. Private Equity Firms

H&Q Asia Pacific has been selected to manage one of a series of new private equity funds being formed by the Korean government, founder Ta-Lin Hsu tells PE Week.

H&Q Asia Pacific, and two partner firms, Wise Assets and Hyundai Securities, were selected to receive a $200 million anchor investment from the Korean National Pension Corp. (NPC) to help the three firms build a much larger $400 million buyout fund that will invest in Korean companies. Hsu says his firm’s consortium won out against eight other bidders for the investment and that Hyundai Securities is undertaking to raise the additional $200 million for the fund.

The NPC will underwrite the effort, providing the capital to be shared among six new venture capital fund managers in Korea. And in selecting the three firms to manage the fund, the Korean government has launched a significant effort aimed at re-invigorating the private equity and venture capital industry in the country.

Hsu says that the Korean government has also been working on a separate effort for buyout funds, in which the NPC will set aside $350 million to serve as anchor investments for two domestic buyout funds in this country.

The news is in contrast to the recent negative headlines about investigations into the activities of foreign private equity firms in Korea, such as Newbridge Capital. Newbridge has been under investigation by the Korea National Tax Service for its acquisition and lucrative sale of Korea First Bank (see PE Week, 5/23/05).

Hsu says that the new fund will make five or six relatively large investments, and he hopes to begin investing before the end of 2005.

“We’d like to make two to three investments before the year-end,” says Hsu, who adds that while the fund has no specific allocations to any market, it will likely focus on consumer, technology, manufacturing, construction and telecommunications companies.

Hsu also says that the group plans to target buyouts from among the portfolio companies held by Korean banks.

H&Q Asia Pacific established its offices in Seoul in 1997, with the help of one of the firm’s advisors, former Defense Secretary William Perry. H&Q Asia Pacific was one of the first foreign private equity firms to successfully invest in and exit from a control buyout transaction deal in Korea – a 1998 buyout of Good Morning Securities, a securities brokerage firm that was later sold to Shinhan Private Equity, an affiliate of Shinhan Financial Group.

The decision to invest in the expansion of domestic private equity follows on the heels of a move late last year when the Korean government allowed domestic asset management firms to invest within the country for the first time.

But the selection of H&Q Asia Pacific, a widely known U.S.-based private equity firm, provides a contrast to the perception that the Korean government is antagonistic towards foreign private equity investors.

The action of the NPC can be viewed as a another effort by the Korean government to expand the resources of the country’s retirement plans into private equity investing. The NPC manages about $150 billion in pension assets, not including teachers and military pension assets.