MBK: Between a rock and a hard-cap

It was an “extraordinary” fundraise, according to market sources. MBK launched its Fund IV in September 2016 and held a ‘one and done’ close before American Thanksgiving.

And the vehicle was well above target, coming in at $4.1 billion against a $3.5 billion goal.

North Asia-focused MBK was set up in 2005 by ex-Carlyle executives and now manages about $15 billion. But it hasn’t been plain sailing.

In October – mid-fundraise – founding partner Kung Kuo Chuan, who was also head of greater China, left for a career break.

In August, the firm had to put the sale of South Korea insurance company ING Life Korea on hold. This came after Chinese investors including China Taiping Insurance and Fosun signalled cold feet amid political tensions between their country and South Korea, according to Bloomberg. That deal would have fetched around $3 billion, market sources say, significantly larger than MBK’s 2013 $1.7 billion investment.

MBK is also facing potential losses over some of its investments. Cable TV operator D’Live, bought by the firm in 2008 for 2.2 trillion won ($2 billion; €1.8 billion) is said by the Korean media to be struggling to repay its 1.4 million won debt and may go into receivership.

Coway, a water purifier manufacturer the firm owns, was hit in July with a class action lawsuit after nickel was found in water after it had been purified. MBK had put its 30 percent stake in the company up for sale in mid-2015 but has yet to find a buyer.

This doesn’t appear to have put off investors. Fund IV had a re-up rate of over 80 percent, including MBK’s five largest LPs – Temasek Holdings, Canada Pension Plan Investment Board, PSP Investments, Ontario Teachers’ Pension Plan and the China Investment Corporation, sources say.

It was popular with North American institutions too. First-timers included The New York State Teachers’ Retirement System, the British Columbia Investment Management Corporation and the California State Teachers’ Retirement System. In addition, the firm picked up new Asian LPs including Samsung and Japan Post.

“Fund IV… had nearly $8 billion in demand,” a source with knowledge of the fundraising points out. “MBK had to cut a lot of people out altogether and cut back allocations to stick to its hard-cap.”

The fund is now the third largest Asian private equity fund, after KKR’s 2013-vintage $6 billion Asian Fund II and RRJ Capital’s second fund which raised $4.5 billion in 2015.

One of the reasons it’s so popular might be its return target, of 25 percent. And that’s in line with the performance of Funds II and III, which are generating high 20s and mid-20s returns, respectively, according to a source close to the matter.

MBK can make eye-catching deals too. In 2015, it sealed the largest private equity deal in Korea – the more than $6 billion purchase of discount retailer Homeplus, alongside CPPIB and Temasek.

Michael Kim, founder of MBK, says North Asia’s promise is one reason the fund did so well: “We think the region is finally poised to realise its potential as a strong market where private equity capital can come in, invest, create value and make profitable exits for our investors – I think that thesis is being proved.”