MBK to Add 'Social Responsibility' to Exits—Will the PE Investment Formula Change? [fn Market Watch]

[Financial News]  MBK Partners will incorporate 'social responsibility' throughout the private equity investment process, from investing in companies and enhancing their corporate value to recovering investment funds through exits.
Beyond simply reviewing Environmental, Social, and Governance (ESG) risks, MBK Partners plans to factor in the impact of its investments on employees, partner companies, consumers, and local communities.
In particular, a principle has been proposed to examine whether companies with significant social impact can continue normal operations after being sold. If MBK Partners, the country's largest private equity fund (PEF) manager, incorporates the principle into its actual investment process, it could influence investment and exit practices across the PEF industry.
According to the investment banking (IB) industry on the 17th, the MBK Partners Social Responsibility Committee recently submitted recommendations titled 'Recommendations for Sustainable Growth and Enhanced Social Responsibility' to MBK Partners. The recommendations were prepared after the committee, which was launched last October, consolidated its discussions.
The key measure is to expand the scope of responsible investment beyond ESG reviews conducted before investment to include the ownership and exit stages. During the investment stage, the recommendations call for reviewing not only financial value but also the potential impact on employment, industrial safety, partner companies, and consumers. During the holding period, they emphasize strengthening portfolio companies' long-term competitiveness through research and development (R&D), capital expenditures, talent development, and supply chain competitiveness.
The committee specifically identified "How much did the company's competitiveness and sustainability actually improve during MBK's investment and holding period?" as a key criterion for responsible private equity investment. In effect, it linked investment performance to how much a company's fundamentals were improved during the holding period, going beyond simply buying low and selling high.
The most notable point is the 'exit principle.' While respecting market principles and its fiduciary duty to limited partners (LPs), the committee recommended that, when selling a company with significant social impact, MBK Partners should also examine, within a reasonable scope, whether the company can continue normal operations after the transaction.
Meanwhile, MBK Partners plans to incorporate the recommendations into its responsible investment framework in stages. It will also consider each fund's fiduciary duties, the authority of the boards and management teams of portfolio companies, and the characteristics of individual investments and markets.
One source in the IB industry said, "There is a trend toward expanding PEF evaluation criteria beyond investment returns to include how the company was transformed during the holding period," adding, "The key will be how these principles are applied in actual investments and exit processes going forward." 

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