Fair-value assessments of alternative investment funds will be mandatory once a year. The criteria will also be tightened, such as requiring assessors to give priority to prices provided by external institutions when determining fair value.
The Financial Supervisory Service and the Korea Financial Investment Association said on the 22nd that, on the 19th, amendments to the Enforcement Decree of the Capital Markets Act and related rules containing these measures took effect.
Under the current Capital Markets Act, fund assets are valued at market price, and when there is no market price, the Collective Investment Property Valuation Committee values them at fair value. However, there has been no rule on the frequency of fair-value assessments, and concerns have been raised that collective investment business entities reflect favorable prices such as acquisition cost or previous assessment prices.
With the alternative investment fund market expanding rapidly in recent years, financial authorities moved to revise the Capital Markets Act. As of the end of Jun., alternative investment funds totaled 345.2 trillion won, accounting for 28% of all funds. Real estate funds have grown at an average annual rate of 20.4%, and special asset funds at 17.4%, far outpacing the average annual growth rates of equity (2.9%) and bond (10.9%) funds.
Under the revised Capital Markets Act, funds without market prices must conduct fair-value assessments at least once a year. In addition, prices provided by external institutions must be given priority in fair-value assessments. However, separate exceptions have been established for cases where external evaluations are unnecessary or impractical.
The FSS said, "We expect this reform to strengthen the fair-value assessment system and bolster investor confidence," adding, "The FSS and the Korea Financial Investment Association will monitor to ensure the changed regime is implemented and takes root without a hitch, and will work to embed fair-value assessment practices across the industry."