National Pension Service faces backlash over hostile M&A investment conditions

This article was published on March 18, 2025, at 4:31 p.m. on the ChosunBiz MoneyMove site.

The National Pension Service confirmed its commitment to invest in MBK Partners, which was selected as a trust management company last year for the private equity fund investment project. However, it added a condition that it would not respond to capital calls if MBK Partners attempts a hostile M&A in the future.

There has been a negative reaction from the private equity (PE) industry. If the National Pension Service unilaterally refuses to invest, it may provoke backlash from other limited partners (LPs), potentially escalating into legal disputes. However, legal experts view that such investment restrictions by the National Pension Service do not violate capital market laws. They argue that just as investments in corporations related to alcohol, tobacco, and gambling are excluded (negative screening), they have the right to refuse participation in hostile M&As.

According to investment banking (IB) industry sources on the 18th, the National Pension Service issued a statement the previous day confirming its investment in MBK Partners' sixth blind fund.

The National Pension Service explained, "Since selecting a trust management company in July of last year, there have been ongoing criticisms that some of MBK Partners' investment strategies, such as the controversial hostile takeover of Korea Zinc, do not align with the management direction of the National Pension Fund." It added, "Ultimately, the National Pension Service executed a final contract in February this year, including a clause stating it will not participate in hostile takeover investments."

Earlier, there were analyses in the market indicating that the delay in confirming MBK Partners' investment was due to the National Pension Service raising such issues. It was suggested that moving ahead with hostile M&A would necessitate unanimous consent from all investors or the passage of a special resolution (more than 67.7% agreement).

In response to the National Pension Service's announcement, there is generally a backlash in the PE industry. One PE representative noted, "If such investment restrictions were included in the articles of incorporation from the start, it would be a different story; however, if they refuse to invest on a case-by-case basis after reviewing whether it constitutes a hostile M&A, they could face lawsuits from other LPs." He also said, "We will have to wait and see whether the National Pension Service can truly refuse to invest or if it is merely a declarative statement."

Some have pointed out that there could be issues regarding procedural matters with the National Pension Service's investment restrictions, despite them not violating the law. The controversy over 'LPs infringing upon GP's inherent rights' that arose during the TaylorMade incident could resurface. The current capital market law regulates that general partners (GPs), who have unlimited liability, cannot delegate the price, timing, or method of transactions involving equity securities to third parties.

However, legal experts are converging on the opinion that this case is unrelated to violations of capital market law. A capital markets attorney from a major law firm stated, "If a PE refuses an investment opportunity after entering an investment commitment, that would be problematic, but saying beforehand, 'I will invest under these conditions' is the National Pension Service's freedom." He added, "If they dislike such restrictions, they simply won't invest."

Another attorney remarked, "The National Pension Service has originally set a fundamental principle of not investing in corporations involved in management disputes. If they commit in advance not to fund hostile M&As, it is entirely possible for them to refuse to fulfill future investment commitments."

However, industry insiders noted that although the National Pension Service's refusal of investment in hostile M&As may not violate the law, there are still potential controversies regarding 'procedural matters.'

An IB industry insider pointed out, "Even if the National Pension Service sets principles not to invest in hostile M&As based on its own screening criteria, MBK Partners may have already been selected as the trust management company, so proposing new conditions could lead to controversy."

A lawyer specializing in M&A also said, "If restrictions are suddenly imposed after selecting a trust management company, there may be procedural issues, even if there are no legal issues."

Moreover, there are expectations for debates regarding how to define 'hostile M&A.' The management dispute between Young Poong and MBK Partners concerning Korea Zinc is complex, as MBK Partners is in a standoff with the Choi family while holding hands with Young Poong, the existing largest shareholder, making it difficult to categorize it as a typical hostile M&A.