The National Pension Service (NPS) has invested 220 billion won (US$197.24 million) in an Asian fund raised by Kohlberg Kravis Roberts & Co (KKR), one of the world’s three largest private equity investment firms. KKR raised 10.5 trillion won (US$9.3 billion) under KKR Asian Fund III, the biggest-ever mobilisation with investment focus in the Asia-Pacific region. The NPS is the only major pension and funds service in South Korea that has participated in the fund.
According to investment banking (IB) industry sources on November 8, the NPS has become a major investor of the KKR Asian Fund III. With success of the KKR Asian Fund II, KKR completed to secure investments for its Asian Fund III in June. Korean-American Joseph Bae, who made big contributions in the process was named as co-president and co-chief operating officer in July. The KKR Asian Fund III acquired a 100 percent stake in the copper foil and flexible copper clad laminate unit of LS Mtron, a subsidiary of LS Group, and a 47 percent stake in LS Automotive, the nation's No. 1 automotive electronics company owned by LS Group, with the investment of 1.05 trillion won (US$941.37 million). In signing an partnership agreement with LS, KKR said, “By making the best use of KKR’s global networks and industry expertise, the company will help LS Automotive and LS Mtron’s copper foil and flexible copper clad laminate business obtain greater achievements.”
The NPS is taking note of the KKR Asian Fund III’s blueprint that is to focus on investment in Japanese and Indian companies. An official from the IB industry said, “KKR believes that Japan’s trend toward super aging society has been settled down as the country lowered restrictions on foreign workers and there are still many potential companies. For India, there are undervalued firms as there are concerns that the country’s growth has slowed down.”
In 2013, KKR’s US$6 billion (6.7 trillion won) Asian Fund II, the largest fund dedicated to investing in the region at that time, generated a net internal rate of return (IRR) of 20.6 percent, drawing attention from institutional investors. An official from the industry said, “Expectations that the structure and operational personnel of the KKR Asian Fund II will be transferred has led to investment.”
As the NPS has made an investment in Asia’s biggest private equity fund, the company has become a big investor in Asian companies. All eyes are also on whether KKR will be able to hold the lead in the industry, beating its competitor Bain Capital that have been focused on Asia for a long time.
The KKR Asian Fund III pays attention to Japan and India. There is an increasing number of investment opportunities in Japan as the nation’s conglomerates are dividing up their business. In addition, more and more small and mid-size companies are handing over the management rights to private fund investors, rather than transferring the management rights amongst family members. After taking over Panasonic’s healthcare division in 2014, KKR bought Pioneer's DJ equipment division in 2015, and Nissan Motor-backed auto parts maker Calsonic Kansei at 5 trillion won (US$4.48 billion) and power tool manufacturer Hitachi Koki at 1.5 trillion won (US$1.34 billion) in 2016. Recently, the private equity investment firm has also made an aggressive move to acquire Hitachi Kokusai Electric by offering 2.6 trillion won (US$2.33 billion). Until now, KKR has invested 20 trillion won (US$17.93 billion) in Japan alone. It has recorded relatively smaller investments and earnings rates in China compared to Japan.
In India, KKR, which expects the middle class to increase consumption, is also making a striking investment in the information technology (IT), entertainment and media industries. The company jointly established Emerald Media, an investment firm to seek out and invest in media and entertainment industries across Asia, with the Chernin Group, making an investment of 330 billion won (US$295.86 million). Recently, KKR, in cooperation with the Canada Pension Plan Investment Board (CPPIB), the Government of Singapore Investment Corporation (GIC), the Abu Dhabi Investment Authority (ADIA), bought India’s telecom operator Bharti Airtel, and Bharti Airtel is expected to set up the nation’s largest mobile tower firm in the future.