Eun Sung-soo, chairman of the Financial Services Commission, has hinted at tightening control over private equity funds (PEF) to protect retail investors amid growing controversies over PEF investment schemes, a sharp U-turn from his previous stance of easing rules on PEFs.

In a press conference held at the government complex in central Seoul on Thursday, Eun said his position on PEFs is shifting towards tightening regulations to better protect individual investors after a number of PEFs recently have been found to be loosely or illegitimately managed, causing massive losses to their investors.

Noting controversies related to big losses from investments in major overseas derivative-linked funds (DLFs) and the suspended redemption of PEFs by the country’s leading hedge fund Lime Asset Management, Eun said the incidents have prompted him to look into the PEF issue from the side of investor protection.

The remarks are seen as a shift in his stance as Eun previously supported relaxing regulations on PEFs during his confirmation hearing last month. He is now seen as having changed his stance more towards enhancing investor protection rules.

Last month, Lime Asset Management decided to halt resale of PEFs due to liquidity shortage and faced with huge losses in investments in DLFs. Also the country’s Justice Minister Cho Kuk is embroiled in a controversy over his family’s involvement in a PEF suspected of dubious operations which is under prosecutorial investigation.

“I thought that when I become a financial authority, I should ease regulations on PEFs thinking that there is no reason for the regulator to supervise PEF operations” Eun said. “But with a series of controversies [related to PEF investment schemes], I can no longer adhere to my view.”

Eun said that his focus is more on how to protect retail investors who recently have been actively seeking for high returns through investments in PEFs, a change from the past when institutional investors mainly invested in PEFs.

Eun noted that the FSC will come up with measures to enhance investor protection by early next month at the latest to prevent the recurrence of recent incidents from consumer perspective in all areas such as planning, management, sales, monitoring, and control. He added that the FSC will look into PEF-related issues that have been pointed out during parliamentary sessions and the media and see if there are loopholes in the current system.

The FSC, meanwhile, plans to speed up dispute conciliation procedures to resolve major losses related to individual investors’ investments in DLFs. There are currently 193 dispute cases filed with the Financial Supervisory Service (FSS).

By Choi Seung-jin and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]