Korea to broaden retail exposure to domestic private equity

The measures, announced by the Financial Supervisory Commission (FSC), will enable a wider range of individual investors to get exposure to private equity through mutual fund products. At present, qualified retail investors with at least KRW1 billion ($942,000) in capital are allowed to make direct commitments to private equity funds (PEFs).

"Through such mutual funds, the market can absorb individual investors' demand for PEF investment," said Seo Tae-jong, a director at the FSC in charge of capital markets, Yonhap News Agencey reported.

Only large financial institutions will be able to set up these mutual funds in what is seen as a move to prevent family-owned conglomerates from expanding into the space. The changes are likely to take effect in late 2014 following a series of public hearings and examination of the procedures by Korea's parliament.

The FSC noted that regulation of private equity in Korea is excessive and complex compared to more developed markets. PEFs account for 0.09% of the country's GDP, trailing the likes of the US (8.83%) and the UK (11.8%).

Korea is one of the few jurisdictions in which GPs are required to register with the regulator in order to qualify for local treatment. Under legislation promulgated in 2005, around 50 firms file disclosures with the FSC on a quarterly basis.

Classification as a domestic entity brings with it capital gains tax exemption and access to strategic sectors that are off limits to foreign investors. For example, ING's Korean life insurance business - which was sold this year to MBK Partners - could not have gone to an offshore private equity investor.

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• Topics
• LPs
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• North Asia
• Regulation
• South Korea
• LPs
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