South Korean financial regulators have set out to investigate more than 10,000 private equity funds in the country, calling for an all-out probe after a string of mismanagement scandals involving asset managers.

“Even if takes a long time, we’re considering looking into all private equity funds in the country,” Eun Sung-soo, chairman of the Financial Services Commission, told reporters on Tuesday.

As of June 19, Korea had 10,282 private equity funds with net assets totaling 424 trillion won ($353 billion), according to the Korea Financial Investment Association.

The toughened action comes amid a series of fraud cases involving privately placed funds. Over the past year, nearly 3 trillion won worth of funds have suspended redemptions due to mis-selling and other irregularities.

The biggest case has been Lime Asset Management, which halted withdrawals worth 1.7 trillion won since freezing its assets last October. Prosecutors have launched a probe into Korea’s biggest hedge fund over allegations that it concealed massive losses and sold products to customers without providing adequate information on the high risks of the investment.

Alpen Route Asset Management has suspended withdrawals worth 229.6 billion won since January. German Heritage DLS (derivative-linked securities) has 427.6 billion won in locked-up assets and the Italian health insurance fund 152.8 billion won.

Last week, Optimus Asset Management also came under regulatory scrutiny over alleged investment irregularities. It froze withdrawals of 38.4 billion won a day before the maturity date, citing legal troubles. It has another 500 billion won due to expire next year.

Korea’s privately placed funds have more than doubled in less than five years, backed by the government’s eased regulations. Private equity funds in the country now have 420 trillion won under management, up from 200 trillion won in late 2015, according to the Korea Financial Investment Association.

But this has not come with proper oversight. While local rules require fund distributors to notify authorities of any misconduct from asset managers, private equity was made an exception. The rapidly ballooning private market also stretched regulators beyond their capacity. The administrative process from investigation to punitive action, which normally takes more than two years, also was deemed too long.

The heated market competition further contributed to creating a moral hazard among asset managers and sellers alike. Asset management firms put high-risk, high-return investments ahead of risk management, while distributors eagerly took up popular funds without proper inspection.

By Kim Je-lim, Jin Young-tae and Kim Hyo-jin

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