Korean financial authority steps up supervision on PEFs

2019.05.10 12:06:08 | 2019.05.10 13:38:12

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Up to 10 private equity funds (PEF) would fall under close inspection from the Korean financial authority amid increasing consumer complaints in line with their market surge.

According to the Financial Supervisory Service (FSS) and sources from the investment banking industry on Thursday, the financial watchdog recently initiated inspection on two local PEFs and plans to expand the investigation to up to 10 funds by the end of the year. It is the first time PEFs come under an industry-wide inspection.

“Questions about their management have increased amid growing influence of PEFs,” said an official from the financial authority. PEFs manage trillions of won of customers’ money but stayed off the supervisory radar because they do not directly serve consumers, the official added.

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The FSS will look into PEF’s internal system, investment soundness and governance structure, and expand the inspection to general partners (GPs) who operate the funds. A private equity firm is called a GP, and local GPs include IMM PE, STIC Investment and JKL Partners.

The local PEF market has been rapidly growing. The funds pulled in investment of 74 trillion won ($62.8 billion) in 2018, growing almost four-fold over the last decade from 20 trillion won in 2009. The number of funds also surged from 110 to 580 over the period.

Local PEFs have recently turned aggressive in raising their voice in corporate management affairs, after remaining low key due to the stigma as predatory profit-seekers. The rise in activism also comes amid the liberal Moon Jae-in government’s efforts to pressure the country’s family-run chaebol entities to improve their corporate governance and boost shareholder returns.

By Jin Young-tae and Choi Mira

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