By Asian Venture Capital Journal
Affinity Equity Partners has been honored 12 times at the AVCJ Private Equity & Venture Capital Awards, from buyout of the year for Korean electronics retailer Himart in 2005 through to large cap exit of the year in 2016 for Loen Entertainment, another Korean company. In both of those years, the contribution of the firm's founding chairman and managing partner was also acknowledged.
K.Y. Tang was named private equity professional of the year in 2005 and returned to the stage 11 years later to collect the AVCJ Special Achievement Award, which recognizes the role played by a particular individual, over a long period of time, in facilitating the growth of the industry in Asia. Speaking in 2016, Tang recalled his acceptance speech of 2005, in which he identified four characteristics that are integral to success in private equity. He believes they are relevant today as they were back then.
"One, be hungry. Two, be passionate. Three, be insightful - you really have to be insightful as an investor in today's environment," Tang told the audience. "Four, don't ever forget the fundamentals. And what are those fundamentals in private equity? One, honor all your commitments and stick to your tasks diligently. Two, treat people fairly. Three, when you do your business, think about it in the long term. Four, when you do deals, act prudently and never take excessive risk."
Having enjoyed success as a banker with Chase Manhattan, Banque Indosuez, W.I. Carr and Union Bank of Switzerland, Tang turned his attention to private equity in 1999, becoming chairman of UBS Capital Asia. The firm completed a number of notable deals, particularly amidst the restructuring efforts in Korea that followed the Asian financial crisis.
In 1999 alone, Affinity acquired MK Electron, the first buyout of a Korean non-financial institution by an international financial sponsor, and Mando Climate Control, the first leveraged buyout in the country by a financial sponsor. Before the year was out, the private equity firm had secured a second asset from bankrupt Mando Corporation, taking control of the conglomerate's auto parts business in conjunction with J.P. Morgan Partners Asia. In 2004, the team spun out to form Affinity.
The firm currently has more than $8 billion under management and has completed transactions in nine countries worth a collective $13 billion. In addition to Himart and Loen, Affinity has outperformed in Korea with Oriental Brewery - a co-investment with KKR that remains Asia's largest-ever PE trade sale - and got in and out of China's Beijing Leader & Harvest Electric Technologies with Unitas Capital. Recent successes in Australia and New Zealand include protein plays Primo Smallgoods and Tegel Group.
Food for thought
Two fundraises, more than two dozen investments and close to 20 exits since winning his PE professional of the year prize, Tang had further observations to add to those initial remarks. He noted that the industry is fortunate to operate under a user-friendly business model: funding is secure for 10 years, rising to 12 years with extensions; and fees during the investment period are flat as they are based on committed rather than invested capital, enabling GPs to manage businesses in a stable manner with one eye on long-term development.
"We should be very considerate of how lucky we are. Because our funding is long term, during situations like the global financial crisis, when there was a severe economic downturn, we had enough time to work through problems and turn around investments," Tang said. "If anything, what we have seen is that private equity has done an excellent job after 2009 of turning around some non-performing investments and not only recover capital but made good money."
With this business model comes a fiduciary responsibility to the firm's backers. Tang recalled a conversation with an LP who once worked as a GP. In that capacity, the LP's former managing partner offered the following treatise: take care of your investors, take care of your investments, and finally, take care of your staff and of yourself. Preserving that alignment between LP and GP is essential to keeping the model sustainable.
At the same time, this sustainability should also apply to private equity firms' internal operations, Tang added. He called on the longer-standing GPs in the region to distribute fund economics widely within teams in order to ensure successful succession planning. And these principles apply equally well to the companies private equity firms back. "Because we are given a long time horizon it is important that we build long term sustainable businesses in our portfolios," he said.