Easier Participation in Management
The Korean financial regulator has decided to ease the rule that local private equity funds (PEFs) have to have more than a 10 percent stake in a big company in order to participate in its management. Accordingly, domestic private equity funds will be able to get involved in management of a corporation with a minority stake just like other foreign hedge funds.
In addition, the Financial Services Commission (FSC) will allow local PEFs to have 100 or fewer investors. Currently, domestic PEFs are allowed to have 49 or fewer investors.
Choi Jong-ku, chairman of the FSC, announced these and other plans at a forum on PEF development held at the Korea Financial Investment Association building in Yeouido, Seoul, on September 27.
Under the new plans, the requirement of a 10 percent stake for management participation, which differentiates PEFs from hedge funds, will be abolished and the private equity regulation system will be unified.
The limits on voting rights of hedge funds for over a 10 percent stake will also be removed. The loan regulations on PEFs will be eased to allow them to take out loans up to 400 percent of their net assets like hedge funds. With the relaxation of regulations, PEFs are expected to aggressively push ahead with mergers and acquisitions.
In addition, the number of investors will be expanded from less than 49 to less than 100 in a bid to increase the base of PEF investors. The “institution-only private equity fund,” which raises funds only from institutions, will be introduced.