Private Equity Executives Vanish from Audit Witness Stand... Criticism Continues

Kim Eui-cheol of Affinity No Longer Called as Witness
MBK Chairman Kim Byung-joo Does Not Attend

Last year, private equity executives appeared at parliamentary audits, including MBK Partners Chairman Kim Byung-joo, who testified over the Homeplus crisis. This year, however, they have disappeared from the witness stand. Criticism of the industry has continued nonetheless, and as regulations grow increasingly stringent, the industry has begun preparing countermeasures.

According to the National Assembly and other sources on October 30, the decision to summon Kim Eui-cheol, CEO of Affinity Equity Partners, as a witness at the National Assembly’s Climate, Energy, Environment and Labor Committee audit was withdrawn on October 27. The decision was reversed after Affinity said it was willing to reach an amicable settlement with those involved in voluntary retirement and layoffs at its portfolio companies.

Committee members had initially planned to question him about employment insecurity following private equity firms’ acquisitions of domestic companies. This was prompted by restructuring and layoffs at LOCK&LOCK, one of Affinity’s major portfolio companies. In 2017, Affinity acquired a 63.56% stake in LOCK&LOCK for approximately 630 billion won. Citing deteriorating performance and other reasons, the company began pursuing the closure of its Anseong plant and outsourcing of production in 2023. In the process, it implemented voluntary retirement and laid off about 30 workers. The National Labor Relations Commission and other bodies ruled that the layoffs were unfair, and a court also found in the first trial that the criteria for selecting employees for dismissal were unfair. LOCK&LOCK, which contested the ruling, has appealed. Kim serves as a non-executive director on LOCK&LOCK’s board.

Kim Byung-joo, chairman of MBK Partners, was again selected as a witness by the National Assembly’s Trade, Industry, Energy, SMEs and Startups Committee over the Homeplus crisis, as he was last year, but said he would not attend. On October 4, Kim submitted a written explanation for his absence, saying that testifying at the audit could affect an ongoing investigation. The committee subsequently sought to summon him again as a witness, but on October 21 he once more submitted a written explanation for his absence. He said he would be unable to provide sufficiently detailed answers to related questions because he was not involved in Homeplus’s management. After Kim failed to appear at the audit, the committee considered issuing an order compelling his attendance and filing a complaint under the Act on Testimony and Appraisal before the National Assembly. However, after the audit concluded, a National Assembly official said that the ruling and opposition parties were not currently considering filing a complaint.

Although private equity executives did not appear on the witness stand, criticism of private equity firms continued at the Political Affairs Committee, which oversees the industry. The most questions concerned MBK Partners’ responsibility for the Homeplus crisis. Democratic Party lawmaker Min Byung-deok argued that the Financial Services Commission was taking too long to impose sanctions on MBK and that this should lead to a change in management. People Power Party lawmaker Seo Il-jun and Democratic Party lawmaker Kim Hyun-jung also said that MBK’s cancellation of its Homeplus shares without compensation was an attempt to evade responsibility. There were also claims that the headquarters of A Twosome Place, which was acquired by global private equity firm Carlyle, was “exploiting” its franchisees. Democratic Party lawmaker Lee Kang-il said that while the company’s headquarters revenue had increased after Carlyle’s acquisition, franchise owners’ sales had fallen, and that the company was making excessive profits from required items such as kiosks.

Kim Hyun-jung raised concerns about Hahn & Company’s paid-in capital increase at SK D&D. After Hahn & Company failed in its tender offer for SK D&D shares aimed at delisting the company, it decided on a large-scale paid-in capital increase equivalent to 2.4 times the existing number of shares. The move, she said, caused the share price to fall and harmed minority shareholders.

Some questions at this year’s audit also addressed challenges facing the industry. Political Affairs Committee Chair Yoo Dong-soo pointed out that domestic asset managers face greater difficulty investing in physical infrastructure than foreign managers. Global firms such as Kohlberg Kravis Roberts (KKR) and Brookfield are making large-scale investments in domestic artificial intelligence (AI) data centers, while domestic managers cannot invest readily through vehicles such as real estate investment trusts (REITs), real estate funds and project financing vehicles (PFVs). Under the Enforcement Decree of the Monopoly Regulation and Fair Trade Act, such investments could result in their designation as large business groups. People Power Party lawmaker Cho Jung-hoon pointed out that the Korea Development Bank has unchecked authority when selecting managers for policy funds because it lacks a post-selection verification process.

As criticism continued at the parliamentary audit and legislation to tighten regulations was discussed, the private equity industry plans to respond by turning its council into an association. On October 28, the Private Equity Fund Managers Council held a general meeting and resolved to transition into the “Korea Private Equity Association.” The association is expected to handle communications with the government, the National Assembly and financial authorities, and to establish a self-regulatory framework for its member firms.

This content was produced with the assistance of AI translation services.