Align heading to Cayman Islands... Foreign institutions uneasy with Korean market

Allin Partners Asset Management Raises 500 Billion KRW Blind Fund in Cayman Islands

Align Partners Asset Management, one of the key players in the domestic shareholder activism boom, is launching a large blind fund (a fund operated without pre-selecting investment targets) in the Cayman Islands. Align Partners Asset Management has primarily operated project funds (funds managed with pre-selected investment targets) in Korea, focusing on single-stock investments to carry out shareholder activism.

According to the investment banking (IB) industry on the 12th, Align Partners Asset Management decided to raise a fund worth approximately 500 billion KRW in the Cayman Islands after meeting institutional investors consecutively in the United States, the United Kingdom, Canada, and other regions.

The reason Align Partners Asset Management is pursuing fund formation in the British Overseas Territory of the Cayman Islands rather than domestically is reportedly due to strong requests from overseas institutional investors during the meetings.

The Cayman Islands exempt corporate tax, income tax, inheritance tax, and others. More than 10,000 hedge funds are based there. Funds entering Korea through the Cayman Islands are often for mergers and acquisitions (M&A) purposes. This in itself is not illegal.

An IB industry official explained, "Funds involving overseas limited partners (LPs) prefer to come through tax havens like the Cayman Islands or Malta," adding, "Overseas LPs have concerns about directly entering the Korean market, and practically, they are more familiar with the British Overseas Territory of the Cayman Islands." He further noted, "The tax advantages or disadvantages vary case by case, so it cannot be said to be uniformly beneficial."

Although these overseas investors strongly recognize the performance of domestic funds and are willing to entrust capital, their preference for indirect investment through overseas entities rather than direct investment is analyzed to stem from ongoing concerns about the domestic capital market’s systems and operational methods.

Recently, the domestic capital market has been more turbulent and stringent than ever. The Financial Supervisory Service (FSS) is conducting comprehensive investigations across all financial sectors. Since the appointment of Lee Bok-hyun, a former inspector, as the head of the FSS, the scope of investigations has expanded to include illegal foreign currency remittances by domestic banks, a full survey of real estate project financing (PF), and stock price manipulation suspicions originating from Soci?t? G?n?rale (SG) Securities, demonstrating an aggressive approach.

Since Lee’s appointment, many CEOs of financial companies who underwent FSS inspections have resigned. Former BNK Financial Group Chairman Kim Ji-wan, former Meritz Asset Management CEO John Lee, and former Asset Plus Asset Management Chairman Kang Bang-cheon all faced intense FSS inspections and ultimately voluntarily stepped down.

As Lee is waging a "war against financial crime," the FSS has recently been thoroughly scrutinizing illegal activities even among regular employees. The FSS recently referred three employees of HYBE to the prosecution on charges of insider trading. It was also confirmed that the FSS detected and investigated insider trading and unfair trading activities by employees of the domestic private equity firm Han & Company, forwarding the case to the prosecution.

The FSS is not stopping there; it is showing a determination to strengthen its financial sector monitoring functions and produce definitive sanction cases through organizational expansion. According to the organizational restructuring plan announced by the FSS this month, personnel in the division investigating unfair practices, including stock price manipulation, will increase by about 35%, and new teams such as a special investigation team, an information collection task force, and a digital investigation response team will be established.

An official from the financial investment industry said, "On the surface, the restructuring targets the stock price manipulation scandal, but there is significant concern in the financial sector that this will ultimately lead to comprehensive pressure on financial companies," adding, "While correcting abnormal market behavior is important, it is also a timely need to appropriately adjust management and supervision strategies."

However, Align Partners stated, "The creation of an offshore fund structure is because large overseas institutional investors fundamentally have a policy to invest only in places like the Cayman Islands where the legal system for fund management has been established and verified over a long period."

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