[Reporter’s Notebook] 20 Years of Private Equity Funds: The Homeplus Incident Threatens to Topple Hard-Built Foundations

"There are clear positive functions of private equity funds, but it seems they are once again being labeled as malicious speculative capital."

On the 17th, an executive of a private equity fund sighed deeply during a phone call with a reporter. Although the negative perception of private equity funds has gradually improved over the past 20 years, he lamented that the recent surprise court receivership of Homeplus by MBK Partners (MBK) has caused all the hard work to collapse in an instant. He said, "If the negative perception of private equity funds grows and regulations tighten, it will ultimately act as a minus for our market economy."

The domestic private equity fund market, launched in 2004, has grown rapidly. According to a report by the Korea Capital Market Institute, the number of private equity funds surged from 2 twenty years ago to about 1,100 by the end of last year. The scale of assets under management also increased from 200 billion won to 136 trillion won, becoming a pillar of the development of the domestic capital market.

Initially, private equity funds faced strong criticism as malicious speculative capital. The domestic view on buying and selling corporate management rights was particularly cold. However, during economic recessions, private equity funds took on insolvent companies, led restructuring and management efficiency improvements, and created employment again, showing several cases that improved perception.

A representative example is when Hahn & Company acquired Namyang Dairy Products, which was suffering from owner risk in 2021, and succeeded in turning around its performance. Another good case is when MBK acquired Coway, which had fallen into a management crisis in the past, carried out management efficiency work, and then reintroduced it to the market, bringing dynamism to the industrial ecosystem.

However, the recent Homeplus incident threatens to topple the hard-built tower. Citizens holding placards with the phrase "Punish the greedy capital MBK severely" have begun gathering on the streets. This is largely due to MBK itself. Looking at Homeplus’s management status so far, several problems have been revealed. There was excessive leveraged management and a lack of insight into the industry's future. Also, the management, close to real estate speculation, is not free from criticism that it was only focused on recovering investment capital.

In particular, MBK’s recent attempts to evade major shareholder responsibility are playing a decisive role in spreading negative perceptions of private equity funds. At the press conference held by Homeplus on the 14th, MBK Vice Chairman Kim Kwang-il took the forefront but avoided answering all the contentious issues. Furthermore, MBK turned away, saying that shareholders have no role to play during the court receivership process.

After the situation worsened following the press conference, MBK Chairman Kim Byung-joo belatedly announced over the past weekend that he would put up his personal funds. This was more than ten days after the Seoul Bankruptcy Court accepted Homeplus’s rehabilitation procedure on the 4th. Even then, there was no specific scale or plan, leaving questions about sincerity.

This controversy has spilled over into the political sphere, raising calls for stricter regulation of private equity funds. As the first-generation private equity fund in Korea and the "big brother," MBK’s handling of this controversy will determine the future of the private equity fund industry. MBK must show a responsible attitude in resolving the situation.