"Stricter Evaluation for Alternative Funds... Fair Value Assessment Required at Least Once a Year"

Financial authorities have strengthened regulations to enhance operational transparency and investor confidence by requiring alternative investment funds to conduct fair value assessments of their assets at least once a year.

The Financial Supervisory Service and the Korea Financial Investment Association announced on September 23 that amendments to the Enforcement Decree of the Capital Markets Act and related regulations concerning alternative investment funds took effect on September 19.

Under the revised rules, all fund assets that are not subject to market price valuation must now undergo fair value assessments at least once annually. In addition, for alternative investment funds such as real estate funds and special asset funds, the fair value must be determined with priority given to prices provided by external professional institutions.

However, exceptions have been made for cases where external evaluation is unnecessary or difficult. For assets not subject to external evaluation, alternative assessment methods must be established and the details must be communicated to investors through asset management reports and other means.

Previously, fund assets were required to be valued at market price, or, if unavailable, the Collective Investment Property Evaluation Committee would determine a fair value. However, there were no regulations regarding the frequency of fair value assessments. Issues were also raised about collective investment companies reflecting acquisition prices or previous valuation prices that were favorable to them.

As alternative investment funds have rapidly grown and become mainstream in the fund industry, concerns have increased that formalistic valuation practices could prevent investors from fully recognizing actual loss risks.

An official from the Financial Supervisory Service stated, "Strengthening the fair value assessment system will improve transparency in fund management and increase investor trust," adding, "We will continue close monitoring to ensure the revised regulations are promptly established within the industry."

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