Lee Chan-jin, governor of the Financial Supervisory Service, said, "With the Middle East war dragging on, losses in overseas private credit funds could spread," and noted, "In this situation, misselling issues in retail investments could surface, and we have recently begun receiving related (investor) inquiries."
◇ Possibility of overseas private credit risk spreading… exposure among pension funds also significant
At a press briefing held at the Financial Supervisory Service headquarters on the 26th, Lee said, "A domestic securities firm sold a lot of (overseas private credit funds) as feeder funds, and there is an issue over whether it properly explained to investors where the money was invested." He also pointed out that the limited disclosure regime makes it structurally difficult for investors to detect risks in advance.
The Financial Supervisory Service (FSS) is currently reviewing the outstanding balance of overseas private credit fund sales at 12 major securities firms. As of the end of last year, of the 17 trillion won in outstanding overseas private credit fund sales, about 500 billion won was sold to retail investors. Although retail funds are not large in absolute terms, the FSS recently asked securities firms to strengthen risk management and prevent misselling in light of the clear growth trend.
Separately, authorities are also identifying related exposure by institutional investors, including pension funds. Overseas private credit funds use leverage to lend to unlisted small and midsize companies on looser terms, and disclosures are limited, making it structurally difficult to detect risks in advance. Lee said, "Exposure at pension funds and Korea Investment Corporation (KIC) is also significant, and we are indirectly reviewing it in coordination with relevant ministries."
◇ "Young adults see no gains even when the market is strong despite 'debt-fueled investing'"… special judicial police to add staff and reorganize
He also said that although the stock market surged early this year and the scale of so-called "debt-fueled investing" (borrowing to invest) jumped, it has recently been easing. Lee said, "Since last year through now, the share of low-collateral accounts, which face relatively higher forced-sale risk, has been declining, and overall soundness in margin lending and securities-backed loans remains relatively solid."
However, he noted that the 20s–30s age group is showing signs of economic shocks from debt-fueled investing. He said, "What is regrettable is that the victims of debt-fueled investing are mostly in their 20s to early 30s, and they have had almost no gains even when the market was strong," adding, "With volatility, forced sales and other triggers keep causing repeated losses, so special caution is needed." By contrast, investors in their 60s–70s use margin lending relatively less, limiting their exposure to such risks.
He also expressed determination to respond firmly to securities crimes by granting the Capital Markets Special Judicial Police (special judicial police) authority to initiate investigations. The Financial Supervisory Service (FSS) plans to increase special judicial police staffing by more than 30 and expand and reorganize the unit into the size of two bureaus.
Regarding recent criticism from some quarters about the special judicial police's lack of expertise, Lee emphasized, "The indictment rate for cases referred with indictment opinions is about 75%," adding, "We will prepare thoroughly in cooperation with expert investigative advisors and former prosecution Deputy Directors to prevent any issues under the rules of evidence."
Separately, the Financial Supervisory Service plans to review whether there was unfair trading or use of nonpublic information by related parties in connection with Samsung Active Asset Management's pre-disclosure of the components of a KOSDAQ active exchange-traded fund (ETF) before its launch. Lee said, "From what we have found, the pre-disclosure was not intentional. However, because the current system requires daily disclosure of ETF components, we will consider systemically whether to manage it in a way that allows simultaneous disclosure at the time of launch."
Meanwhile, in connection with the Homeplus Co. case, sanctions procedures against MBK Partners are to be concluded within the first half. Lee said, "There are a few points that need review, so it is slightly delayed, but regardless of criminal proceedings, we will finish (the sanctions decision) within the first half at the latest."