Kim's quest

With $1.5 billion to invest in Korea, Japan and China, Michael Kim is one of Asia's most promising financial entrepreneurs. Sharon Lim met him in August.

Over dinner in downtown Seoul, Michael Byung Ju Kim professes an admiration for the conquering ways of Genghis Khan, the 13th century Mongolian warlord who created the largest contiguous empire in world history.

Kim, the founder of North Asian private equity firm MBK Partners, intends to do some conquering of his own, and some of the methods employed by the great emperor some 700 years ago should also work for MBK today he feels.

Eager to share some of his knowledge of the legendary leader, Kim says, only partly in jest: ?Genghis Khan was the first great private equity practitioner, and one who knew all about providing the right incentives. He knew his terrain and, armed with this local knowledge, acted with speed and nimbleness to expand his territory from his North Asian base. He also entrusted local CEOs to run local matters.?

The Khan's approach clearly resonates with Kim. At a time when many international private equity firms are scouting for local talent in Asia, local connectivity is also an important part of MBK's strategy, he explains.

Kim and his four partners, all former members of the Asian private equity arm of The Carlyle Group, established the firm in March 2005 and raised a $1.56 billion debut fund to invest in three countries: South Korea, Japan and China.

Roughly 50 percent of the fund is likely to be invested in Korea, 30 percent in Japan, and 20 percent in Greater China. Says Kim: ?In Asia, most of the major private equity deals and exits have been in Korea and Japan so far. These countries, along with Australia, are where the thesis that you can make money with private equity in Asia has been proven. And China, with its growth potential, will soon join that club.?

?We are now seeing Chinese companies going out to bid for foreign companies, and we also see European companies that have made, or are going to make, commitments to investing in Asia.?

The firm has 19 investment professionals spread across offices in Seoul, Tokyo and Shanghai. Kim is based in Seoul, along with fellow partners Jay Bu and James Yoon Jong-Ha. Kensuke Shizunaga sits in Tokyo, while KC Kung heads up the Shanghai operation.

As Kim points out, MBK's chosen geographic focus makes it something of a hybrid between a country fund and a pan-Asian manager. ?Asia is too large and its cultures are too diverse for a pan-Asian fund. We go for depth in the markets we're in, not just breadth. With anti-foreigner bias rising in Korea, and China also starting to show signs of it, you have to be local. You have to live in the market to access the deal flow; you need relationships on the ground to source opportunities. Tip O'Neil, the American politician, said ?all politics is local?. We believe all business is local.?

To date, MBK has completed two investments. The firm is a minority stakeholder in Beijing Bowei Airport Support, a provider of airport maintenance services, and has also acquired Hanmi Capital, a Korean leasing company, for $92.7 million.

A third deal, the $126 million acquisition of HK Mutual Savings Bank, Korea's second largest mutual savings bank, is pending regulatory approval. Recently, MBK was also involved in the bidding for LG Card, the Korean credit card company that in August agreed to be bought by Shinhan Financial Group.

MBK's interest in financial services companies is no coincidence. After all, it was in a highly successful financial services transaction that Kim made his name as private equity investor. In October 2000, a Carlyle-led consortium bought a 40.5 percent stake in KorAm, one of Korea's largest commercial banks, for $450 million. Kim helped originate the deal and won praise for his role in selling the stake five years later to Citigroup for $2.7 billion.

ORIGINS
Prior to joining Carlyle in 1998, Kim had built a career in investment banking, first in the US, then in Asia.

Born in Jinhae, a small town near Busan in Korea, Kim moved to America during high school. After ten years in the US, he took up American citizenship. He attended Harverford College, a liberal arts college in Pennsylvania, where he majored in English Literature and East Asian Studies. After graduation, he joined Goldman Sachs in 1986.

Speaking of his early years in banking, he says: ?I kind of fell into Wall Street as I never fancied myself as someone who would end up in finance. This was in the mid-80s, the height of the investment banking boom when the best and the brightest flocked to Wall Street.?

At Goldman, Kim completed a two-year financial analyst programme, which he describes as ?the most intense two years of my life up until then?. Afterwards he went to Harvard Business School to ?decompress?.

?I swore I wouldn't go back into finance, but of course I ended up going back to Goldman.? In 1993, Kim returned to Asia to work for Goldman in Hong Kong before serving as managing director and chief operating officer of Salomon Smith Barney's Asia Pacific investment banking business.

A highlight of Kim's investment banking career came in April 1998 during the Asian crisis. At a time when Korea was teetering on the brink of insolvency, Kim worked on a $4 billion sovereign bond issue that ultimately helped stabilise the country's finances. For Kim, it was a career-defining experience: ?It showed me the impact that capital can make and was a watershed event in my career as a financier.?

When Carlyle came calling later that year, Kim saw an opportunity to move on from banking and to become a principal investor. He opened the firm's Seoul office in March 1999 and became president of the Korea operations in January of 2000. In 2003, Kim was named a ?charter member? of Carlyle's management committee – a select group of key individuals tasked with managing the firm's global operations.

?The founders of Carlyle and I saw eye to eye, and so I was trusted with a lot of responsibility early on. They also supported me in the KorAm investment, the largest deal Carlyle had ever done up until then.?

But despite his future at Carlyle looking promising, Kim says he decided to move on when conditions, particularly in Korea, appeared ripe for a homegrown, independent private equity fund.

FUNDRAISING
Reflecting on the decision to leave the comfort of working for a prestigious organisation and set up on his own, Kim says:?As great a firm as Carlyle was, by 2005 I thought it was high time for a local fund. Being part of a global organisation brings constraints as well as benefits. They can't move as quickly, and they have global strategic imperatives. To me it seemed important to have a fund for Asia owned by Asians who could make investment decisions on the ground rather than having to report back to the US or the UK. A local manager need not worry about resource allocation across markets globally, and that is where MBK's strengths lie.?

Kim tendered his resignation from Carlyle on 8 March 2005. ?Setting up MBK was the first time in my life I took a risk. I woke up the next day thinking I am not going to be drawing a pay check, and now faced the daunting realisation that we had to feed people who had come out with me from Carlyle. But we were entrepreneurial and had the conviction that we were in the right place at the right time. It created a perfect storm, in a positive sense.?

MBK initially set out to raise $1 billion, but it quickly transpired that investors liked the proposition. Six weeks into unemployment, Kim and his team drew their first dollar of support for the debut fund. ?People are incredibly proud of being Asian, and that helped us make rapid progress with the fundraising,? says Kim.

By the time the fund closed on $1.56 billion, some of the demand for the fund was left unsatisfied. ?We felt we are the right size at around $1.5 billion, and we are not from the Supersize Me School because the market isn't that deep, and investments are not that prolific to invest a multi-billion dollar fund profitably.?

Kim says the lion's share of the fund's capital came from Asian and North American investors, with the balance put up by European and Middle Eastern LPs. He also says MBK has a special co-investment relationship with Korea's National Pension Service, an arrangement that gives the firm ?additional firepower, as well as an important endorsement of our local fund standing?.

One large investor in the fund is Temasek, the Singapore government's investment company, which according to market sources accounts for close to a third of the partnership's capital. Ontario Teachers Pension Plan and Public Sector Pension Investments of Canada, are also large investors in the fund.

Kim declines to disclose further details of the fund's investor base, but stresses that MBK is wholly owned by the five partners, refuting market speculation that a number of LPs who have contributed significant portions of the fund may own stakes in the management company. ?LPs are strictly LPs. If we were beholden to some investors, then we wouldn't be truly independent.?

THE ARM BENDS INWARDS
Kim is confident that the firm will succeed in all three of its chosen markets. The firm's corporate headquarters is in Seoul, where the firm is registered as a domestic investment fund regulated by Korea's Financial Supervisory Services. Regulation requires the firm to file disclosure statements with the FSS. It also provides clarity on the tax status of the firm's Korean investments, which Kim believes gives it an advantage over foreign GPs operating in the country, whose fiscal positions he describes as less transparent.

In Japan, MBK aspires to compete with the three leading local houses Advantage Partners, MKS Partners and Unison Capital. Kim is confident that the presence of his Tokyo-based partner Kensuke Shizunaga will help the firm develop a franchise quickly.

In China, where the market for buyouts remains in its infancy, Kim says MBK may have to ?flex our mandate a little bit? and focus on growth capital investments also.

In all three markets, however, the firm has the relationships it needs to do well, Kim argues. ?There's an old Korean saying: the arm bends inwards. Asian sellers want to sell to other Asians, which can help us win proprietary deals.?

Kim's personal network should also come in handy when it comes to sourcing transactions. Among the people he is close to in Korea is his father-in-law, Park Tae Joon, the former prime minister of Korea.

He doesn't say whether his plans include a stint in Korean politics one day. For the time being, he is committed to building a private equity business. But Kim is only 42 years old and obviously a driven individual. It might not come as a surprise to those who know him if at some point he decided to follow in the footsteps of his father-inlaw – let alone those of his empire-building idol Genghis Khan.

MBK Partners
Established: March 2005

Offices:

Seoul (7 Investment professionals)

Shanghai (6 Investment professionals)

Tokyo (6 Investment professionals)

Founding partners:

Michael Kim (Seoul)

Jay Bu (Seoul)

KC Kung (Shanghai)

Kensuke Shizunaga (Tokyo)

James Yoon Jong-Ha (Seoul)

Fund under management:

MBK Partners, $1.56 billion

Investment focus: buyouts and growth capital in Korea, Japan and Greater China; to invest fund over five years at a pace of $300 million annually across two to three deals

Key investors:

Temasek Holdings

Ontario Teachers' Pension Plan

Public Sector Pension Investments

of Canada

National Pension Services of Korea

co-invest only)