As part of its 20th anniversary celebrations, FinanceAsia is running a series of interviews with figures that have shaped Asian finance over the past two decades.
One of the most influential is Michael B. Kim who we described as the godfather of the Asian private equity industry in our 10th anniversary magazine issue back in 2006.
Kim shot to fame after spearheading one of the most symbolic transactions during the Asian Financial Crisis - the sale of KorAm Bank to a foreign private equity buyer, his then company Carlyle Asia Partners.
The bank was subsequently sold to Citi in 2004 and Kim went on to establish his own private equity fund with partners. Last year, MBK Partners completed Asia's largest leveraged buyout to date, the $6.5 billion acquisition of Tesco's Homeplus business in Korea.
Below, Kim explains where he thinks the industry stands today and where it is heading over the next two decades.
How has the Asian private equity industry changed over the past 20 years? You’ve been part of it from the ground floor up.
The industry has grown in tandem with the region. That’s been the big story over the past 20 years: the huge gravitational shift of the global economy towards Asia. China has clearly been the big driver, but also Japan, Korea and Taiwan.
As Asia has grown wealthier, it’s created pools of capital and the institutions to manage them such as Temasek, China Investment Corp (CIC) and the Korea National Pension Service (NPS). They’ve provided the bedrock for many PE deals.
You joined Carlyle Asia Partners in 1999 right at the height of the Asian Financial Crisis.
The Asian Financial Crisis was a defining moment for many in the financial markets and a revolutionary period for Korea. It transformed itself overnight from a country hostile to foreign capital to one that embraced it.
When Newbridge acquired a 51% stake in Korea First Bank for $480 million in 1999 it was a real shot across the bows, not just for Korea but the region as a whole.
In early 2000 Carlyle purchased a 40.5% stake in KorAm Bank for $412.3 million. Both these deals happened right at the height of the crisis.
What did they signify over the longer-term?
First, they demonstrated how shareholder value is created when the private equity industry deploys its capital and expertise. Korean policymakers finally got the message that private equity can play a positive role in the markets.
Secondly, we localised KorAm’s management and I think that was an important change too. Prior to this, it was commonly assumed that experts from the US and Europe would provide the requisite technical know-how.
But we appointed a team of Korean managers who we thought were best in class.
Much of the growth and success of Asia’s private equity industry has been about localisation. It’s similar to Lee Kuan Yew’s views on democracy: that Asia needs to create its own form.
You can’t just pluck a Western flower and expect it to flourish in Eastern soil. You have to adapt to local conditions.
The $6.5 billion Homeplus acquisition we did in Korea last year is a good summation of all these things. We believe our localness was a big factor in winning the deal.
We had local pensions with us as investors and our relationship with domestic banks enabled us to secure a large and favourable loan package.
How have PE exits changed over the past two decades?
They’re still dominated by trade sales than rather than public market exits, particularly outside of China and India. However, the buyers have changed.
It used to be multinationals, but it’s increasingly Asian buyers, particularly from China. It’s a clear trend and a significant development for our business.
North Asia has also seen leveraged recapitalisations take root.
I think we’ve reached a critical mass of exits in Asia now and it’s creating a virtuous circle.
We do need still need a fully-fledged LBO market in China. But that’s a question of when, not if.
You said PE was in its infancy when FA celebrated its tenth anniversary. Where do you think it is now?
I’d say it’s been at the adolescent stage since around 2008. It’s not mature yet by any stretch of the imagination.
There are still some policy issues relating to the cultural acceptability of private equity as a legitimate and helpful source of capital.
How has Korea itself changed over the past 20 years? When FA was first published the economy dominated by the chaebol. How much has their influence diminished?
I think it’s very clear the government [of President Park Geun-hye] is committed to corporate governance. That’s having a positive impact on the way Korea Inc does business.
Chaebol still dominate the market, but they’re more focused on governance. Private equity has a role to play in that evolution.
Asia is forging a path where strong regimes create sound economies and then facilitate the democratic rights the West often takes for granted. Look at China’s support of UN sanctions against North Korea last year. It was a significant step driven by economics.
How about the next 20 years? Can we dare hope that North and South Korea may be re-unified?
I’ve always said we’ll see Korean re-unification in my lifetime… although now I’m in my 50s there isn’t much time left.