Documents prove that pro-government businessmen own a number of private equity funds with vast fortunes whose owners have so far remained secret, Direkt36 has learned, using data obtained from a state register.
Among other things, Direkt36 learned the following:
The special rules applying for private equity funds offer investors the possibility to hide huge fortunes. While in the case of traditional companies anyone can obtain official information about their ownership and finances with a few minutes of online research, private equity funds are different.
It is a form of investment in which a closed circle of investors can put their money and grow their wealth without being subject to company disclosure rules. The money is held by a fund manager company on behalf of the investors. The ownership of the fund manager is public, but it is not possible to find out whose money is in the private equity fund they manage.
Private equity funds exist in many countries around the world, primarily for investment purposes. In Hungary, however, a few years ago, the business elite close to the government saw the potential of their secrecy and started using them like offshore companies are used elsewhere: to increase their wealth in complete secrecy.
As a result, private equity funds have multiplied in Hungary, and hundreds of billions of HUF worth of wealth have been transferred to them. A series of fund managers linked to billionaires close to the government have built ever larger portfolios. Money has been invested in almost every sector of the economy. Private equity funds own, for example, the 35-year-old Hungarian motorway concession, hotel chains, dozens of Budapest’s luxurious palaces, restaurants, banks, industrial companies, waste treatment plants and many others. Valuable state-owned properties and companies have also been transferred to private equity funds, ultimately enriching the wealth of unknown individuals. Last year, business site G7 estimated that the total anonymity scheme was so widespread among large investors that by 2021, 3.5 percent of all Hungarian companies’ profits were realized in private equity funds.
Direkt36 has now found the ultimate beneficial owners of about a fifth of the operating private equity funds, 26 in total, in a state database managed by the tax authority NAV. This is a register of beneficial ownership, created in response to an EU requirement and currently available to anyone for a small fee.
It is not clear whether the ultimate beneficial owners of private equity funds should be included in the register maintained by the NAV. There are conflicting laws and different definitions of who should be considered the ultimate beneficial owner.
When Direkt36 asked NAV for guidance on this, they replied that we should direct our questions to the Prime Minister’s Office. They did not elaborate on what the government apparatus had to do with the issue of private equity funds, which in principle belongs entirely to the business world. The Cabinet Office, however, responded to our inquiry by saying that “we strongly refute even the suggestion that the Prime Minister’s Office has any jurisdiction over the ownership registry of Hungarian private equity funds”.
We asked for reactions to our article from all relevant fund managers and beneficial owners but received no response from most of them. Two fund managers – Quartz and Opus Global – replied that they could not disclose information about owners and investments. Among other things, Áron Hornung wrote that we were inaccurate about him, but he declined to specify which of our claims he disputed. Közép-Európai Kockázati és Magán Tőkealapkezelő Zrt., which according to the NAV database manages Hornung’s funds, said that the database contained incorrect data due to a bank administrative error, but did not specify who the real owners of the funds were. (Update: After the publication of our article, 4iG’s head of communications indicated that two private equity funds were wrongly linked to Lőrinc Mészáros in the database – presumably also due to a bank administrative error – and that they are in fact owned by Gellért Jászai, the head of 4iG.)
According to Direkt36’s research, out of the total of 119 private equity funds registered by the Hungarian National Bank, 37 reported their beneficial owners to NAV’s system, but 11 of these only identified persons who, as managers of the fund, can make decisions about the investment of the fund’s money, but do not have a stake. The extent of their interest varies between 39 and 100 per cent.
Of those with an interest, 17 private equity funds belong to clearly pro-government owners, but a further five are also closely linked to pro-government business circles. Among them are well-known billionaires such as István Száraz, László Szíjj, Lőrinc Mészáros, Zsolt Hernádi and Gellért Jászai. Lőrinc Mészáros is the most prominent: he has a 100 per cent stake in nine private equity funds, and another two belong to his corporate lawyer, József Tamás Kertész.
These are what we found out about the funds:
Below you can see the ultimate beneficial owners, who are businessmen close to the government or persons connected to them:
|Name of private equity fund||Beneficial owner(s)||Percentage of interest|
|Felis||Száraz István Péter||100|
|Global Alfa||Mészáros Lőrinc||100|
|iG TECH||Jászai Gellért Zoltán||100|
|Konzum PE||Mészáros Lőrinc||100|
|Közép-Európai I.||Hornung Áron||93|
|Közép-Európai II.||Hornung Áron||92|
|KÖZÉP-EURÓPAI VI.||Szabadics Zoltán||100|
|PRIME FINANCE||Dr. Kertész József Tamás||100|
|PRIME PROPERTY||Dr. Kertész József Tamás||100|
|REPRO I.||Mészáros Lőrinc*||100|
|Solva||Hernádi Zsolt Tamás||80|
|STATUS FOOD||Mészáros Lőrinc||100|
|STATUS NEXT||Mészáros Lőrinc||100|
|STATUS PROPERTY||Mészáros Lőrinc||100|
|UNCIA||Száraz István Péter||100|
(For the other identified beneficial owners, no clear public or political affiliation was found, so we decided not to disclose their names.)
(After publication, Gellért Jászai’s 4iG has said, these private equity funds currently belong to Gellért Jászai.)
It is probably because the system was set up barely a year and a half ago, and because of the complexity of the regulations, that made it possible that some of the beneficial owners of private equity funds have appeared in the NAV registry.
The 2021 law on the establishment of a de facto register of beneficial owners does not name private equity funds, so they are not specifically covered by the regulation, which means they can continue to keep secret who their main investors are. However, they do have bank accounts and another law, the Anti-Money Laundering Act, requires banks that maintain accounts to keep records of the beneficial owners of legal entities. Thus, the beneficial owner of some of the private equity funds may appear in the NAV register even though they should not be there officially.
As the law and the database are new and the regulation is complicated, banks appear to have chosen different solutions of declaring who owns the funds and who should be considered the beneficial owner. A guide on how to determine the beneficial owner in complex cases – “complex ownership structures” – is available on the Hungarian National Bank’s website. And while it is detailed and covers a lot of subjects from identifying foremen to dealing with offshore companies, it does not specifically address the case of private equity funds.
But in their case, it is not at all clear who the beneficial owner should be: the person holding the majority of the shares (at least 25 per cent according to the law)? Or the manager of the management company? In the case of private equity funds, the people who put their money into the fund cannot formally decide how it is invested, because this is decided by the management of the company managing the private equity fund. However, these managers do not have a share in the fund, so profit always goes to the investors.
In the Hungarian practice however, personal links between the fund manager and the owners of the fund are presumably very common. This is also shown by documents downloaded by Direkt36, which basically show that people with shares in private equity funds also have influence on the fund management companies, or even own them outright.
As part of the fight against money laundering, the European Union already instructed Member States in 2015 to start keeping a central register of beneficial owners of companies and other legal entities registered in their territory. Such a database is a dream of investigative journalists and anti-corruption organizations, as it makes it harder for owners hiding behind offshore companies to hide their assets. However, investors seeking to increase their wealth in secret were clearly not happy about this.
Member States were reluctant, with only a few of them having created the database by the 2017 deadline. In the meantime, partly in response to the scandal induced by the publication of the Panama Papers stories, which exposed a series of offshore secrets, the EU has moved even further towards transparency, and a subsequent 2018 directive required that the identity of beneficial owners be made public. This means that not only public authorities but also ordinary citizens have the right to know the identity of the beneficial owners.
The actual ownership registers were then established in this spirit across Europe. Hungary was one of the last in 2021. The register is managed by the tax authority, and banks are required to report the data to the system monthly. The banks are entrusted with this task because they manage the accounts of companies, subsidiaries, law firms, pension funds and a range of other legal entities. At the opening of the account and later, in the event of a change of details, banks are obliged to ask their customers for a declaration of the identity of the beneficial owner, which they forward to the NAV register. In principle, mainly authorities have access to the database, but under EU rules, anyone can know the identity of the beneficial owner by paying HUF 1 500 (approx. 4 euros) per account.
However, the Hungarian system, which came into operation in 2021, may not be with us for much longer. The EU has seen a series of lawsuits against the disclosure of data, and at the end of November last year, the Court of Justice of the European Union, the Curia, ruled that it is not okay for anyone to know the identity of the actual owners.
Only a few hours after the ruling, Luxembourg switched off its own registry, and the Netherlands followed suit the next day. In the following days, Austria, Belgium, Malta and Germany also ended open access. The Hungarian system is still available.
Dániel Szőke contributed to this article.