(Bloomberg) – In the financial world, debt buyouts are sometimes seen as controversial – the realm of fictional villain Gordon Gekko of “Wall Street” – where companies borrow large sums of money to buy their targets.
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But Kyungsun Chung, a grandson of Hyundai Motor Co. empire founder Chung Ju-Yung, hopes to combine corporate buyouts with his ties to some of Asia’s most powerful clans to generate impact investing. which generate benefits but also environmental, social and good governance actions.
Where most ESG funds try to use slightly cheaper loans or minority stakes and shareholder votes to encourage companies to go greener, Singapore-based Sylvan Capital wants to buy control of established companies to force change from within. It aims to close an inaugural fund of $ 400 million to $ 500 million by next year, and a spokesperson said more than half of that amount has already been committed by backers, including United Overseas. Bank Ltd., Hanwha Life Insurance Co., Kolon Industries Inc. and members. of the Hyundai family before the start of the official fundraiser.
It’s an idea with little precedent that could help spark a new way to improve the environment and society faster. But with impact investments that often come with additional risks, borrowing money to impose “green” business ideas could also magnify losses.
“As a civilization, what we’re doing right now is not really sustainable anymore and we really need to take action to do something,” Chung said in an interview. “We have a responsibility to prove that Asia is ready and that we can make bigger impact investment deals.”
As the only son of Hyundai Marine & Fire Insurance Co. president Chung Mong-yoon, his traditional background would have been to work within the company or consultancy firms with the ultimate goal of taking over the family business.
But after a youth spent being bullied for his bookish habits and lack of athletic prowess, Chung, 35, has spent years trying to understand the violence of his tormentors and the fault lines of society. For the past decade, he has worked in philanthropy, social enterprises, and real estate projects that have built offices in distressed neighborhoods for charities in Korea and the United States. He ultimately decided that large companies can have more of an impact with relatively small adjustments.
“I realized that hating the perpetrators of bullying doesn’t solve anything and that if I wanted to do something about it, I really needed to make a more peaceful civil society by solving a lot of problems,” he said. declared. “What I’m doing with impact investing to solve problems is really the very, very long road to a self-defense mechanism. “
The Sylvan Group will aim for deals that take control of companies worth between $ 100 million and $ 500 million each, spending a total of around $ 1.2 billion when leverage is included. Businesses that can benefit from the disruptions caused by an aging population and urbanization, education and climate adaptation are among its main focus areas and the company plans to close up to five deals this year. The company claims that Valerie Rockefeller sits on its board of directors and is an ESG Impact Partner.
Chung faces stiff competition. Traditional private equity firms have spent years looking to Asia to prepare for the generational change. As the second and third generation of family businesses begin to take over, many will follow the path of their European peers and sell to enjoy life, create family offices or try new sources of income.
The impact investing market, which was previously estimated by the Global Impact Investing Network at $ 715 billion in 2020, is also inundated by traditional private equity firms seeking deals – which could lead skyrocketing valuations in areas such as renewable energies. Many of Chung’s deep-pocketed competitors will not need leverage to close deals.
Even though his rivals offer better pay, Chung hopes his more holistic approach will appeal to targets. The fund aims to buy controlling stakes that keep the existing family and management on board for the transition, while generating an annualized return of 25%. It aims to do so while improving ESG benchmarks through measures such as improved technology, increased efficiency, and retraining of workers on new business models.
Chung relies on his association with one of Asia’s best-known business clans and his long history of working on impact to open doors and build trust. This is an advantage that could be essential in Asia, where a larger share of the economy remains in the hands of family businesses.
“We really want to help them turn this major change into something more lasting,” he said. “They know I have the history and background of our own family business, I can give them a much more detailed background.”
Sylvan will be one of the few impact LBO companies to raise significant funds. Stockholm-based Trill Impact, which was started by EQT co-founder Jan Stahlberg, raised its first buyout fund of 900 million euros ($ 1.1 billion) this year. He said one of the benefits of running an impact fund is the lower cost of capital for lenders looking to meet ESG goals.
By combining this slight advantage with other skills like his team of experts who are attentive to the evolution of ESG regulations in Europe, Stahlberg hopes to secure buyout deals with commercial rates of return while doing good. . Much of this will be driven by young consumers demanding that the services they use be produced and regulated with sustainability in mind – a change that will be felt in Europe sooner than in Asia or the United States.
“If I can show that you can make that much money if not more just by investing in companies that contribute, I will probably get 30-40 followers and then we will really change the global investment community,” Stahlberg said in an interview. .
(Updates with names of contributors in the fourth paragraph)
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