"Private Equity Fund Redemption Delays... All Occurred Since 2015 Deregulation"

[Asia Economy Reporter Park Jihwan] Since the deregulation of private equity funds in 2015, a total of 361 cases of redemption suspensions have occurred.

On the 22nd, according to data on the 'Status of Private Equity Fund Redemption Suspensions' from the Financial Supervisory Service, provided by Park Kwang-on, a member of the National Assembly's Political Affairs Committee from the Democratic Party, there have been a total of 361 redemption suspensions in private equity funds over the past 10 years, all of which occurred after 2018. From 2011 to 2017, there were no cases at all.

Redemption suspensions in private equity funds surged to 10 cases in 2018, 187 cases in 2019, and 164 cases up to August 2020. This year, 164 cases have been recorded up to August. If the current trend continues, it is expected to increase by 32% compared to the previous year. This is interpreted as a rapid increase in redemption suspensions as the maturities of poorly performing private equity funds formed after deregulation are gradually becoming due.

The Financial Services Commission lowered the minimum investment amount for private equity funds from 500 million KRW to 100 million KRW in 2015 and simplified the establishment of fund management companies from approval to registration, and fund establishment from prior registration to post-reporting. As a result, the private equity fund market grew rapidly, more than doubling from 200.4307 trillion KRW in 2015 to 428.6693 trillion KRW in October 2020.

Funds such as Lime Asset Management and Alpenroute Asset Management, which have recently been problematic, were all formed after the 2015 deregulation of private equity funds. Lime Asset Management’s funds, with redemption suspensions amounting to 1.4651 trillion KRW, were formed after December 2016, and Alpenroute Asset Management’s funds, with 368.6 billion KRW in redemption suspensions, were formed after August 2016.

The bigger issue is that as the private equity fund market rapidly expands, the possibility of new poorly performing private equity funds emerging is high. According to a recent investigation by the Financial Supervisory Service into 51 private equity fund management companies, the scale of redemption suspensions as of the end of August was 6.0589 trillion KRW. Additionally, funds worth approximately 726.3 billion KRW are estimated to have a high possibility of redemption suspensions.

Assemblyman Park Kwang-on said, "As seen in the DLF incomplete sales and private equity fund incidents including Lime and Optimus, it is urgent to reform the backward financial market structure vulnerable to protecting financial consumers," and added, "Related systems must be improved to prevent recurrence of illegal and unlawful acts exploiting regulatory gaps."

Park also added, "The Financial Consumer Protection Act to be implemented next year should introduce systems for consumers such as collective dispute resolution, class action lawsuits, and punitive damages."

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