[Derivative ABC] What Is the Difference Between Public and Private Funds?

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[Asia Economy Reporter Park Jihwan] Last year, the large-scale principal loss concerns of investors have become a reality due to the consecutive suspension of redemption incidents in private equity funds, starting with Lime Asset Management and recently Optimus Asset Management. In the case of the problematic Optimus fund, the suspension of redemption is expected to reach up to 500 billion KRW.

So, what exactly is a private equity fund, and what are the differences compared to public funds that are often mentioned together?

The difference between public funds and private equity funds can first be divided based on the scale of investor recruitment. If there are 50 or more investors, it is classified as a public fund; if fewer than 50, it is a private equity fund.

Public funds collect and operate funds from 50 or more unspecified investors publicly. They mainly target individual investors. Funds that we can subscribe to through securities company websites or sales agents mostly fall under this category. Public funds have the advantage of small investment amounts, so their accessibility is much better compared to private equity funds.

Public funds are subject to strict regulations to protect investors. They must comply with asset management regulations, obligations to explain and provide investment prospectuses, external audits, and other regulatory requirements. Additionally, there are restrictions such as not investing more than 10% of trust assets in the same stock and not investing more than 20% in stocks issued by the same company.

On the other hand, private equity funds refer to small-scale funds with fewer than 50 investors. They are formed by privately recruiting a small number of investors rather than the unspecified public. These products have somewhat relaxed regulations compared to public funds and are characterized by relatively free and aggressive management to increase returns.

The minimum investment amount per person in private equity funds is 100 million KRW or more. Because they require more investment capital than public funds, accessibility for general investors is generally lower.

This content was produced with the assistance of AI translation services.