[Exclusive] MBK Investment Advisory License Suddenly Surrendered... What Is the Reason?

Special Situations Returns Korean Investment Advisory License
MBK: "Already Licensed in Hong Kong... Unnecessary Domestically"
Some See Move as Attempt to Avoid FSS Investment Advisory Inspections

MBK Partners (MBK) has abruptly decided to relinquish the investment advisory license of its subsidiary fund management company. While the company stated that the license was "unnecessary domestically," the private equity industry interprets this move as a measure to preemptively prevent the Financial Supervisory Service (FSS) from conducting inspections under the pretext of investment advisory business.

According to the investment banking (IB) industry on the 19th, MBK Partners Special Situations plans to apply for approval from the Financial Services Commission this month to abolish the investment advisory business, which is part of its financial investment business. MBK Special Situations is a 100% subsidiary of MBK’s Hong Kong entity and manages MBK’s Special Situations Fund (SS). MBK explained, "Since we hold an investment advisory license in Hong Kong, the domestic investment advisory business has effectively been dormant for a long time. Furthermore, with the 2021 amendment to the Capital Markets Act expanding the business scope of institutional specialized private equity funds, there is no longer a need to maintain the investment advisory license."

Coincidentally, on the same day, the Financial Investigation Division 1 of the Seoul Southern District Prosecutors’ Office conducted a search and seizure targeting MBK Special Situations and employees of the law firm Kwangjang on suspicion of unfair gains using undisclosed information during the 2023 public tender offer of Korea & Company.

Various interpretations have emerged regarding MBK Special Situations’ return of the investment advisory license. Some speculate that it is due to disputes arising from a management rights conflict with Choi Yoon-beom, chairman of Korea Zinc. Last year, Korea Zinc claimed that MBK used undisclosed materials provided during a 2022 request for new business investment advice in the management rights dispute. Korea Zinc even filed a complaint with the FSS, alleging a possible breach of the non-disclosure agreement (NDA) by MBK.

However, at the time, MBK categorically denied the allegations, stating, "The buyout fund and the special situations fund involved with Korea Zinc are separate legal entities, and information exchange is blocked." An IB industry insider also explained, "Since the 2021 legal amendment allows institutional participation private equity funds to naturally provide investment advisory services, the license abolition and NDA violation appear largely unrelated."

There is also a view that this is a preventive measure against potential future disturbances such as inspections by the FSS. A former FSS official said, "The Capital Markets Act grants inspection authority over private equity funds to understand their financial and operational status, but in reality, intensive investigations have been difficult. Investment advisory firms have somewhat easier inspection conditions."

In fact, although the 2021 amendment to the Capital Markets Act introduced inspection rights for institutional private equity funds (PEFs) and their general partners (GPs), no comprehensive inspections have been conducted due to issues such as inspection manpower. Inspection conditions also require necessity for financial market stability or sound trading order. The recent order by FSS Governor Lee Bok-hyun to inspect MBK was based on the judgment that the Homeplus corporate rehabilitation case disrupted market order.

On the other hand, the FSS can relatively freely inspect investment advisory firms. They can conduct regular inspections and request internal documents as needed. A private equity industry insider said, "Inspection requirements for private equity funds are more stringent, so authorities might use investment advisory business as a pretext to conduct inspections. Relinquishing the investment advisory license could be a way to fundamentally eliminate the possibility of future disturbances."

On the 18th, during the urgent issue inquiry related to Homeplus, MBK Partners, and Sambutogeon at the full meeting of the Political Affairs Committee held at the National Assembly, Cho Ju-yeon, Co-CEO of Homeplus (from the right), Kim Kwang-il, Vice Chairman of MBK Partners and Co-CEO of Homeplus, and other selected witnesses are listening to the questions from the lawmakers. Photo by the National Assembly Press Photographers Group, Yonhap News Agency