Regulatory reform boon to South Korean private equity landscape

The revision of the Capital Markets Act, soon to be in effect starting October, aims to separate institutional funds and non-institutional funds.

SEOUL: An anticipated regulatory change in South Korea will bolster growth of the burgeoning private equity industry led by large and reputable fund managers, according to a report.

The revision of the Capital Markets Act, soon to be in effect starting October, aims to separate institutional funds and non-institutional funds. It is largely aimed at protecting non-institutional end-investors of private funds, as a number of misselling scandals had dented the fund industry over the past couple of years.

But what mapped out in the wake of the scandals has played out favourably for private equity fund managers. Those overseeing institutional funds will be able to provide the extended pool of investment structures and terms to institutional investors and target companies, according to the report published by United Kingdom-based market intelligence firm Preqin.

“The key point of the bill is that, if all investors in a fund are institutions, the manager can use different investment structures to meet the diverse capital needs of potential portfolio companies,” Chai Jin-ho, executive managing partner at STIC Investments, was quoted as saying in the report.

The report titled, “Preqin Markets in Focus: Alternative Assets in Asia-Pacific 2021,” also noted that the revision will allow South Korean private equity funds to take advantage of the leverage at the fund level and have exposure to private debt.

“On the whole, these changes bode well for the continued development of the industry,” the report read.

The changes, however, are likely to place disproportionate regulatory strain on small and mid-sized managers, while the dominance of larger fund managers will strengthen over time in the landscape home to MBK Partners, Hahn & Co, IMM Private Equity, STIC Investments, and more.

“As a result, we expect larger, more reputable (fund managers) to benefit from the changes,” Preqin noted.

According to Preqin’s estimate, South Korea-based private equity fund assets under management came to a record US$102bil (RM422.28bil) as of September 2020. Of the total, private equity firms’ buyout strategies, or strategies to acquire control of the target companies, accounted for 44% of the total assets under management, followed by venture capital and growth capital.

South Korea’s 281 fund managers with exposure to private equities has raised an aggregate US$92.5bil (RM382.95bil) in capital from 2010 to March this year, accounting for 90% of Korea-focused private equity funds globally, data also showed. — The Korea Herald/ANN

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