Carlyle flexes muscles in Korean financial industry as Lee takes helm

The Carlyle Group has been growing its presence in South Korea after sealing a string of investment and business deals with top Korean financial services firms this year. The US private equity firm is expected to further expand its footprint in Asia’s financial sector under the leadership of Kewsong Lee who was appointed as its sole CEO in July.

Since the divestment of its wholly-owned ADT Korea, the country’s No. 2 securities service firm, for a profit of almost $1 billion in 2018, Carlyle had been barely visible in the country’s M&A market – until it launched two credit funds with Shinhan Financial Group early this year.

Carlyle has raised over $1 billion from Korean insurers through the two credit funds, an infrastructure credit fund and a revolving loan fund, targeting Korean insurance firms.

The revolving loan fund was the first investment vehicle jointly designed by a Korean asset manager and a global alternative investment firm tailor-made for Korean investors.

In June, Carlyle announced a strategic alliance with KB Financial Group to cooperate on new investment opportunities both in Korea and abroad. As part of the alliance, Carlyle agreed to buy $200 million worth of bonds convertible into KB Financial shares. It plans to acquire an additional 260 billion won ($219 million) worth of shares in the Korean banking group.

The KB deal marked its first investment in a South Korean bank in two decades.

In terms of Carlyle’s business activities in Korea, financial industry sources draw a clear line between the time Lee, of Korean origin, was installed as co-CEO in 2018, and after.

Lee’s network with South Korean businessmen helped Carlyle swiftly grab opportunities. Last year, Carlyle hosted an investor forum in Seoul where Lee held discussions with high-profile Korean business leaders, including Hyundai Motor Group Executive Vice Chairman Chung Eui-sun.

“After Lee was appointed as the sole CEO, the market has put increasing value on cooperation with Carlyle,” said a private equity industry source. “That may reflect confidence in Lee.”

FORAY INTO REINSURANCE

In August, Carlyle entered South Korea’s reinsurance market in partnership with the country’s largest reinsurer Korean Re.

The announcement came after Carlyle completed a $2.2 billion acquisition of Fortitude Group, which includes the US reinsurer Fortitude Re, from American International Group, in June. South Korean institutional investors have committed a substantial amount of capital to a Carlyle fund that financed the acquisition.

Lee seeks to manage insurers' capital put aside for more than 30 years to cover claims and to generate a profit, a longer-term view than private equity firms' typical three-to-five year investments.

He joined Carlyle in 2013 as deputy chief investment officer for corporate private equity and worked as head of the global credit segment. Before this, he worked at Warburg Pincus since 1992. Lee’s expertise in the insurance industry adds weight to his influence at Carlyle.

During his 21-year stint at Warburg Pincus, he led the investment in reinsurer Arch Capital Group when he was 36 and was a member of its board for 18 years. He was also involved in Warburg Pincus’ acquisition of RenaissanceRe.

Carlyle, with $221 billion in assets under management, has $73 billion in dry powder. In the first half, it deployed under $6 billion of new capital to investments.

Lee favors large investments over small deals, meaning that Carlyle will aggressively chase buyout deals in Asia, which Lee said was recovering from the coronavirus impact faster than other regions.

In South Korea, Carlyle combined its operations, previously divided into buyout and growth capital units, in 2017. The growth capital unit, focusing on minority stake deals, has suffered from investment losses and delayed exits.

Write to Sang-eun Lucia Lee at selee@hankyung.com