Sparx Group CEO Shuhei Abe is legendary for his skills at the negotiating table — and for his appetite for growth. Largely by shrewd and steady acquisition, the 54-year-old, Tokyo-based titan has built Sparx, founded in l989, into by far the biggest Asian hedge fund firm, with current total assets under management of $12 billion ($8.13 billion in hedge funds). There was some surprise, then, when Abe (pronounced AH-bay) announced this year that he was selling part of his controlling interest in $3 billion Seoul-based Cosmo Investment Management to the Lotte Group, one of Seoul’s five largest chaebol, the huge family-owned industrial conglomerates that have dominated South Korea’s economy for decades.
But the deal would clearly benefit Sparx by giving it a weighty local partner with an enormous retail following. Lotte, whose core business is department stores, boasts a customer base of 10 million credit card holders, and managers at Sparx and Lotte see the potential marriage as a defining moment in selling the South Korean public on the possibilities of asset management and hedge fund investment. The proposal makes sense for Lotte too because South Korea is deregulating the financial sector, making the chaebol fearful of up-and-coming rivals. Lotte, which has 38,000 employees in South Korea and Japan, sees the deal as a chance to get into the retail financial sector in a big way, with a savvy partner at its side.
Neither party will reveal much about the deal, but insiders at Lotte say the company is insisting on holding a 51 percent interest in the Cosmo stake it would share with Sparx. The size of the transaction is estimated at up to $500 million, and Lotte is hoping to close it by the end of the year, though recent declines in the stock market in South Korea have been a drag on talks.
In 2005, Sparx bought a 68 percent stake in Cosmo as part of a larger overseas play that included the complete buyout of Hong Kong–based hedge fund firm PMA Capital Management in 2006. Cosmo performed well after Sparx bought its controlling stake; assets under management shot up sevenfold in less than three years, a fact that Sparx negotiators have no doubt mentioned to Lotte executives. Although Masatoshi Fukami, Sparx’ managing director in charge of strategy, said in June that he hoped to complete the deal by the end of August, negotiations continued to ebb and flow as that date passed. If home field is an advantage, Lotte may have the upper hand: The talks are taking place in Seoul.
