Lone Star
Overview
Lone Star Funds is a private equity fund group headquartered in Dallas, Texas, United States, founded by John Grayken in 1995. It grew through a strategy of purchasing distressed debt and restructuring-target assets at low prices, increasing their value, and reselling them; it acquired Korea Exchange Bank in 2003, sold it to Hana Financial Group in 2012, and then filed a large investor-state dispute settlement (ISDS) lawsuit against the Korean government, sparking significant controversy in Korea.
Main details
Founding and investment strategy
Since its founding in 1995, Lone Star has grown into a private equity fund focused on investing in non-performing loans (NPLs), real estate, and corporate restructuring assets in the United States, Japan, Europe, and Asia. It is characterized by a vertically integrated structure in which, through its asset management affiliate Hudson Advisors, it directly handles debt collection and restructuring of invested assets. It has expanded its assets under management (AUM) to the tens of billions of dollars by successively raising multiple blind funds, and has invested mainly through closed-end funds across various sectors such as banking, insurance, and real estate.
Entry into Korea and acquisition of Korea Exchange Bank
During the financial institution restructuring process pursued by the Korean government after the 1997 financial crisis, Lone Star entered the Korean market in earnest by acquiring about 51% of Korea Exchange Bank's shares for approximately KRW 1.38 trillion in 2003. In the same year, it also acquired Korea Exchange Card, and afterward pursued normalization of Korea Exchange Bank's management and asset sales. Lone Star's acquisition of Korea Exchange Bank was the first large case in which a foreign private equity fund secured management control of a Korean commercial bank, and it simultaneously raised the aspects of attracting foreign investment and restructuring the financial industry as well as controversy over a "fire sale."
Sale and stock manipulation controversy
Lone Star pushed to sell its Korea Exchange Bank shares starting in 2010, but allegations were raised that it intervened during negotiations to unfairly lower the stock price. Through prosecutors' investigations and trials, some individuals on Lone Star's side were convicted of manipulating Korea Exchange Bank's stock price, and this became a key issue in the sale negotiations and subsequent litigation. In 2012, Lone Star sold its Korea Exchange Bank shares to Hana Financial Group for approximately KRW 3.9 trillion and was assessed to have made a profit in the range of about KRW 2 trillion. Criticism continued over the size of the profit, tax issues, and the method of recovering public funds.
Investor-State Dispute Settlement (ISDS) lawsuit
In November 2012, Lone Star filed an ISDS arbitration claiming approximately USD 4.7 billion in damages against the Korean government. The claimed grounds were that the financial authorities unfairly delayed the sale and that its legitimate rights as an investor were infringed during the stock manipulation investigation. The case, filed with the International Centre for Settlement of Investment Disputes (ICSID) under the World Bank, resulted in a first-instance-type ruling on August 30, 2022, in which the arbitral tribunal recognized some illegality by the Korean government and ordered compensation of approximately USD 216.5 million (approximately USD 280 million including interest). It was recorded as a representative case in which the Korean government lost an ISDS case.
Recent developments
Since 2023, the Korean government has initiated proceedings seeking annulment of the ICSID award, and with related hearings continuing, whether the award will be finalized and the issue of payment of compensation remain major issues. Apart from the Korea case, Lone Star continues its investment activities by raising new funds in the real estate and distressed debt markets of the United States, Europe, and Japan. Meanwhile, in 2024–2025, the global private equity industry is being affected by a high-interest-rate trend, delayed exits, and real estate value adjustments, and Lone Star is also in the flow of adjusting its portfolio reorganization and investor refund strategies. In Korea, policy and legal discussions continue over the controversy regarding the recovery of public funds after the sale of Korea Exchange Bank and the implementation of the ISDS award.
Related topics
- [[사모펀드]]
- [[외환은행]]
- [[투자자-국가 분쟁해결제도]]
- [[하나금융지주]]
- [[존 그레이큰]]