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Ex-Morgan Stanley Banker Raises $3.2 Billion for Two Korea Funds

Ex-Morgan Stanley Banker Raises $3.2 Billion for Two Korea Funds

(Bloomberg) -- Hahn & Co., founded by former Morgan Stanley banker Scott Hahn, raised $3.2 billion for two funds focused on South Korea, the biggest pool of capital ever gathered for the country.

The Seoul-based firm raised $2.7 billion for its third buyout fund, and $500 million from overseas investors for a co-investment fund, according to a person with knowledge of the matter, who asked not to be identified because the fundraising hasn’t been announced. The latest capital pool is almost triple the size of a $1.2 billion vehicle the firm raised in 2015.

A Hahn & Co. representative declined to comment.

Investors are betting on the firm’s strategy of acquiring major players in key industries, including shipping, automobiles and cement, and consolidating smaller players in fragmented markets. South Korea’s jobless rate is at an almost six-year low, yet global demand for the country’s exports has weakened. Asia-Pacific private equity deals that focused on restructuring, carve-outs and turnarounds rose in value in 2018 to more than triple the average in the previous five years, led primarily by South Korea, according to a Bain & Co. report.

The average return on equity for Korean companies is 9%, one of the lowest in the world, according to Dalton Investments LLC. Taiwan, which is economically similar to Korea, has an average dividend payout ratio of 58%, compared with 17% for Korea, according to the Santa Monica, California-based investment-management firm.

Started by Scott Hahn in 2010, Hahn & Co.’s latest funds surpass the $2.17 billion pool gathered by Korea Development Bank, raised in 2009 and previously the biggest Korea-dedicated buyout fund, according to Asian Venture Capital Journal. Hahn & Co.’s first fund, for which $750 million was raised in 2011, generates gross investment returns of more than 25%, or two and half times the original investment so far, said the person with knowledge of the matter.

Global buyout firms including TPG and CVC Capital Partners have made senior appointments in South Korea over the past few years, betting that the country’s pledge to reform the family-owned conglomerates known as chaebol will lead to more asset sales. A KKR & Co.-led group, meanwhile, bought property in South Korea’s Gangnam business district for $1.9 billion last year. In the past, global private equity firms have struggled in the nation, with Lone Star Funds entangled in legal cases for years after a public backlash over its profits on an investment in Korea Exchange Bank in 2003.

Hahn & Co. manages $6.8 billion, having bought companies in 20 countries with more than $9.7 billion in annual revenue, according to its website. The firm last year acquired SK Shipping Co. in a $3.7 billion transaction that’s helped the Korean company cut its debt to 300% of equity from 2,400%. Hanon Systems, which Hahn & Co. bought for $3.6 billion in 2015, acquired Toronto-based Magna International Inc.’s fluid pressure and controls business in a $1.23 billion deal in the same year.

Hahn & Co.’s biggest competitor, MBK Partners Ltd., founded by former Goldman Sachs Group Inc. banker Michael Kim, manages $16 billion, with a focus on investments in Korea, Japan and Greater China. Its biggest deals include the $1.56 billion acquisition of Daesung Industrial Gases in 2017, and the $6.1 billion purchase of Tesco Plc’s South Korean business in 2015.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net

To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Daniel Taub, Katrina Nicholas

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