MBK chairman highlights potential of Northeast Asia

Asia’s largest private equity firm MBK Partners founder and Chairman Michael Byung-ju Kim highlighted China’s recovering domestic consumption and Korea and Japan’s changing demographics triggered by fast aging as key investment points in the region this year, in a letter to investors on Sunday.

With its portfolio spanning across Asia, the Seoul-based company manages over $26 billion in the capital.

Kim shed fresh light on the quality of growth of the Northeast Asian economies.

"China is no longer just the export engine to the world but a domestic consumption giant in its own right,” Kim said in the letter. “China’s private consumption contribution to gross domestic product has been steadily increasing since 2010, while its exports contribution has been decreasing.”

"MBK Partners’ investment strategy has focused on domestic consumption play," he added, explaining how the firm invested in China's car rental operators CAR Inc. and eHi, beauty spa and medical beauty service provider Siyanli and ocean theme park operator Haihean.

“From CAR Inc. to eHi and Siyanli to Haihean, our China portfolio has been constructed to benefit from the greatest middle-class rise in modern history,” he said.

Another major socioeconomic change is the aging populations in Korea and Japan, Kim wrote.

“Demographics really is destiny,” he said. “Within this broad theme, we recognize the salience of having the two most rapidly graying societies in the world in Japan and Korea. Hence our increasing emphasis on health care, especially elderly care, in investments like Tsukui, Unimat and Osstem.”

Tsukui Holdings Corporation and Unimat Retirement Community are both nursing care providers for the elderly in Japan. Osstem Implant, MBK Partners’ recent buyout, involving $609 million in equity, is a dental implant manufacturer based in Seoul.

“We particularly like the developing confluence of health care and technology (notably of the consumer-facing variety),” Kim wrote.

In the long term, Kim projected the Asian private equity markets would continue to grow, but there would be turbulence.

“The Asian private equity markets cannot be expected to grow in a leap to the West’s penetration level without the messiness and some disruptions along the way. They will develop the way markets invariably develop, with some growing pains,” he wrote. "Patience will be rewarded."

In the letter, Kim shared MBK Partners deployed $3.9 billion in investments last year, which nearly matches up to its record-level figure from the year before, while it completed $2.9 billion in realizations.