The Korea Financial Investment Association noted on the 18th that as the accounting uncertainty of the permanent closure-type infrastructure fund is resolved, the supply of private funds to infrastructure projects is expected to become full-scale.
According to the asset management industry, if a financial company participates in ultra-long-term infrastructure projects through a fund, the evaluation gains and losses can be reflected in the profit and loss every year, which has acted as a constraint.
As a result, according to the cumulative data of the top 6 asset managers in terms of the number of infrastructure fund formations, the size of infrastructure funds, which reached 2.1 trillion won in 2020, sharply declined to 600 billion won last year. In particular, among the financial sectors, insurance companies, which had a high investment ratio, had no new investments as of March this year.
The Korea Financial Investment Association applied for an official inquiry to the Accounting Standards Board and received a reply that a closed-type fund without a maturity can be treated by the investor as FV-OCI (fair value through other comprehensive income). This means that evaluation gains and losses can be reflected in other comprehensive income and not directly in net income.
The Korea Financial Investment Association anticipates that with the Ministry of Economy and Finance planning to discover new infrastructure projects in environmental, road, and railway sectors with a scale exceeding 18.5 trillion won this year, projects that pass the Private Investment Project Review Committee and resolve funding issues through permanent closure-type funds will gain momentum in project execution.
▲Strengthening growth and industrial competitiveness, ▲carbon neutrality and climate crisis response, and new types of public-private investment projects will also be discussed between the government and financial institutions. The asset management industry plans to create permanent closure-type funds in which institutional investors can invest in infrastructure projects, supplying funds for mezzanine loans and equity investments that must endure high investment risks.
Lee Chang-hwa, head of the asset management and real estate division of the Korea Financial Investment Association, said, "We will support the industry in preparing fund regulations in consultation with financial authorities so that the permanent closure-type fund can contribute to the revitalization of private investment projects."