Seoul searching at H&Q

U.S. private equity firms haven't won many popularity contests over the past few years in South Korea. Local financiers and officials, who have little experience with buyouts, have watched in consternation as the likes of Lonestar Partners, the Carlyle Group and Newbridge Capital have made billions restructuring South Korean companies. Tax officials even made surprise visits to the Seoul offices of Lonestar and Carlyle in April.

So how did San Francisco­based H&Q Asia Pacific just one month later win a $200 million mandate from South Korea's National Pension Corp. to invest in domestic buyouts?

"The main psychological difference is that we are Asian," says H&Q Asia Pacific's founder and chairman, Ta-lin Hsu, an American who was born in China and studied in Taiwan. (Founded in 1986 as a unit of investment bank Hambrecht & Quist, now part of J.P. Morgan Chase, the private equity firm has been independent since 1996.) "Our whole team in Seoul is Korean nationals," says Hsu, 61. "We always felt that this is our land, our country, our career and our future."

To avoid charges of political interference, the NPC, which was making its first foray into buyouts, asked H&Q Asia Pacific and six South Korean firms to compete in a rigorous selection process overseen by a team of eight judges -- four from the NPC and four from outside. (The other winner: Shinhan Private Equity, which was awarded a $150 million mandate.) "During the competition we didn't even know who they were," says Hsu.

But South Korean officials certainly knew H&Q Asia Pacific. The firm bought failing Ssangyong Investment & Securities in 1998, renamed it Good Morning Securities and sold it in 2003 to Shinhan Financial Group. What's more, Lee Hun Jae, a former deputy prime minister who once headed the country's Financial Supervisory Commission, was a member of H&Q Asia Pacific's South Korean advisory board from 2001 to 2004.

For its latest foray into the country, H&Q Asia Pacific has formed a consortium with South Korean firms Hyundai Securities and Wise Asset Management as well as Dutch bank ABN Amro that aims to raise $400 million and make two or three investments across a spectrum of industries later this year. "We'll be putting a lot of our own capital to work, a lot more than is usual in the West," says Hsu. "It's a sign of a closer working relationship, but there will not be any interference."