The Financial Supervisory Service (FSS) has completed a total inspection of private equity funds (PEFs) after risks related to Lime Asset Management came to the surface two months ago.
According to the FSS, some PEF firms are running their funds in a similar way to Lime. They include two firms in close mutual investment relations with Lime, AlpenRoute Asset Management which recently failed in fund redemption, and one or two more fund management firms.
In conducting the inspection, the FSS focused on total return swap (TRS) contracts, mezzanine investment and open fund management as three major factors of potential liquidity crisis risks. In most cases, the FSS launches an official investigation after an abnormality is detected as a result of such inspection. This time, however, it is highly cautious in that an official investigation could result in a fund run.
PEF-related systems and regulations are likely to be improved again based on the result of the inspection. In November last year, the Financial Services Commission (FSC) came up with a plan to further protect those investing in high-risk investment products, which includes raising the minimum hedge fund investment applied to general investors from 100 million won to 300 million won. Lime reported its fund redemption failure later, and then the FSC announced that it would look into every part of the PEF market.