Financial Supervisory Service Governor Lee Chan-jin said that domestic institution-only private equity fund (PEF) managers have greatly contributed to enhancing the competitiveness of domestic corporations, but he noted that the agency will respond strictly in accordance with the law and principles to acts that undermine the market's fairness and trust.
The Financial Supervisory Service (FSS) held a meeting with CEOs of 12 PEF managers at its Yeouido headquarters on the afternoon of the 20th. At the meeting, attended by Governor Lee Chan-jin, Senior Deputy Governor for Capital Markets Seo Jae-wan and others, participants discussed ways to revitalize productive finance, including restoring trust by strengthening the social role and responsibility of PEFs and supplying venture capital. The agency also took time to listen to and communicate about industry proposals.
Governor Lee Chan-jin emphasized that over the past 20 years, the PEF industry has established itself as a key pillar of Korea's capital market by improving corporate structures and discovering growth corporations.
Lee said, "The PEF industry has helped strengthen the competitiveness of domestic corporations through accumulated investment experience, management innovation capabilities and global networks," but added, "It is regrettable that there have recently been cases in which some managers disrupted market order through illegal or improper means."
The Financial Supervisory Service (FSS) plans to conduct "pinpoint inspections" of PEF managers to examine areas where risks are concentrated while minimizing the burden on the market. It also plans to simultaneously work to strengthen managers' self-regulatory capabilities and social responsibility through support for compliance monitoring and consulting.
Lee urged PEF manager CEOs to take the lead in the transition to productive finance by promoting ▲ the establishment of a sound and transparent investment culture ▲ stronger internal controls ▲ fulfillment of social responsibility ▲ and a greater role in supplying venture capital.
He said, "Rather than excessive borrowing or complex transaction structures, it is necessary to establish an investment approach that discovers portfolio companies with high growth potential and creates value through management innovation," adding, "I ask CEOs to pay special attention so that a self-regulatory framework can operate effectively to strengthen internal controls within the industry."
He continued, "The PEF industry needs to work to establish investment practices that fulfill social responsibility, such as job stability and the sustainable growth of corporations, and I hope it will serve as a catalyst for productive finance by moving beyond short-term profit-seeking to boosting corporations' mid- to long-term competitiveness and discovering promising corporations."
The CEOs who attended the meeting agreed on the need to shift to productive finance and said they would actively cooperate in fostering national core projects through the Public Growth Fund and other vehicles.
While saying they would implement the recently announced PEF system improvement plan without a hitch, they also suggested that fair regulations are needed so that domestic PEFs do not suffer disadvantages due to regulations when making investments identical or similar to those of overseas PEFs.
Earlier, the Financial Services Commission announced a PEF system improvement plan on the 22nd of last month. The plan includes a "one strike out" rule that cancels the registration of a general partner (GP) if it violates a serious law even once, and a requirement to report to the financial authorities the reasons and management plans when borrowing in an amount equivalent to 200% or more of net worth.
The CEOs stressed that when revising PEF-related laws and regulations in the future, it is necessary to fully consider industry characteristics so that the competitiveness of domestic PEFs is not undermined.
At the meeting, the Financial Supervisory Service (FSS) said it would compile the opinions presented by the industry and reflect them in future supervision and inspection directions.
Lee concluded, "I hope PEFs will make the protection of investor interests and social responsibility core values throughout investment and management," adding, "The Financial Supervisory Service (FSS) will spare no institutional and policy support so that the restoration of market trust and industry growth can be in harmony."