Corruptive private equity funds
The author is an industry 1 team reporter of the JoongAng Ilbo.
All it took was 15 minutes to make the biggest philanthropist and business tycoon in the United States. On Feb. 25, 1901, Andrew Carnegie, king of steel, sold his company to J.P. Morgan.
The sale price was $480 million. The contract was concluded with a handshake after 15 minutes, with no lawyer in presence. Carnegie returned the money to the community.
The handshake is recorded as the first PE in the world. PE, or private equity, refers to the capital investing in stocks issued by unlisted companies in the over-the-counter market. PE and private equity funds are the key axis of the private capital market.
Private equity funds are imports. A related system was introduced in Korea as the country went through the IMF rescue package. The purpose was to respond to global private equity funds hunting Korean companies. Since then, Korean private equity funds have grown day by day.
The size of private equity funds has surpassed that of public offering funds. The net asset of private equity funds in Korea was over 400 trillion won ($350 billion) as of October 2019. This is on par with the government’s 2017 budget of 400.5 trillion won. The government’s deregulation policy is considered to have affected the increase in net assets of private equity funds.
Private equity provides high earnings to investors — and capital for growth to the companies. Doosan, Kumho and Dongbu all succeeded in restructuring through private equity funds. It is the good function of private equity funds.
But it’s a different story when private equity funds meet political power. The adverse effect is highlighted as investment opportunities that are only applied to a few. In the Moon Jae-in administration, I notice some powerful figures and their families investing in private equity funds. Dongyang University Prof. Chung Kyung-sim, wife of former Justice Minister Cho Kuk, is in trial for her alleged illegal investment in a private equity fund.
Interior and Safety Minister Chin Young was confirmed to have invested in the Optimus Asset Management, which is suspected of political lobbying, and the debate over the appropriateness of high-level officials’ private equity investment began. A big hole is noted in the verification of high-level officials, as Chin’s asset disclosure earlier this year did not include his private equity fund investments.
Incumbent and former Blue House aides are also being investigated by prosecutors in relation to their alleged lobbying for private equity funds. When power and capital are in close contact, the speed of corruption accelerates.