[금소법 25일 시행]Responsible only for the seller, leaving’private material indirect competition’

Financial Services Commission aims to revitalize public offering markets

Open the way for private equity indirect investment

It’s more than half of the’closed type’ with big losses

Manager monitoring is the default for sellers

Leaving over individual investor management

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With the Financial Consumer Protection Act, the financial authorities have prepared systematic supplementary measures to prevent the recurrence of the private equity crisis, such as foreign interest rate-linked derivatives-linked funds (DLF) and Lime-Optimus Asset Management. The main goal is to impose the obligation to check and monitor the managers on sellers such as banks and securities companies, and to take responsibility for’illegal sales’. However, some are raising concerns that it could induce disputes by forcing the role of safety board only to sellers with the’private fund re-indirect public offering’ system, which is the root cause of the private equity crisis.

According to the Financial Investment Association on the 21st, out of the total professional investment-type private equity (hedge fund) of 445 trillion 467 trillion won as of the end of February, real estate funds, mainly closed-type funds, are 107 trillion 67 trillion won (24.1%), and special asset funds are It amounts to 100.5 trillion won (23.6%). Including derivative-type financial products and funds that invest in bonds, the proportion of closed-type funds is estimated to be over 50% of all private equity funds. Closed private equity funds cannot be redeemed until maturity, so the risk of loss is high.

Private investment in this closed fund has been allowed since 2017. At that time, the Financial Services Commission opened a way for individual investors to invest in private equity funds through private equity indirect methods to revitalize the public offering market. Originally, private equity funds cannot receive investments with more than 49 employees. In February of this year, the revised bill of the Capital Markets Act passed a plenary session of the National Assembly, and the recruitment limit for private equity funds exclusively for institutional investors has increased to 100 or less.

The key to the law on the 25th that will be enforced is that the mechanism to protect individual investors from such high-risk closed private equity funds will be greatly strengthened. It allows investors to exercise the’right to terminate illegal contracts’ if they do not comply with the explanation obligation or if they violate the six sales regulations, such as the so-called conformity principle, which recommends products suitable for the individual investor’s investment grade.

This is why banks and securities firms are making bouts of the gold law. Since the private equity crisis last year, due to the revisions of the Financial Investment Business Act and the Capital Market Act, sellers have already been required to monitor and check managers. With the enforcement of the gold law, even sales to individual investors must be strictly managed. It is a structure in which the seller bears most of the investment risks of managers and individual investors.

An official from the wealth management (WM) department of a commercial bank said, “(Regarding the enforcement of the financial law), internally, it is the same as saying that private equity funds should not be sold at bank counters anymore. Compared to what Yu said to sell a lot of private equity funds, he said.

With the enforcement of the gold law, the risk of private equity investment failure is created in a structure that most sellers take. If the seller does not comply with the six sales regulations, such as selling it to consumers who are not’objectively’ and not satisfied with the duty to explain, the seller must buy the securities again. For example, if an individual investor who has invested in a closed fund with a maturity of 3 years and the fund is lost while the maturity is left, he may exercise the right to terminate the contract with the seller. You have to give and buy securities. The fund’s future losses are passed on to the seller.

Regarding this, an official from the Financial Services Commission explained, “The premise of the exercise of the right to terminate illegal contracts is illegal,” and said, “If the consumer says it is illegal later, if you prove that it is not, there will be no problem with the sale of private equity funds.”

Sellers point out that it would be better to get rid of the private placement redemption method. In fact, in a situation where sales are difficult, it could be costly to build the manpower and infrastructure needed to monitor managers and comply with the Financial Consumer Law. In the meantime, it has been steadily pointed out that private equity funds should allow only institutions to invest according to their original purpose. At the private equity system improvement discussion held by Kim Byung-wook and Democratic Party lawmaker in February this year, JKL Partners Partner Choi Won-jin said, “The public offering of private equity is a problem.”

However, it is not easy in reality as the Moon Jae-in administration is preparing investment products for the public to invest in the New Deal Fund through private equity funding.

There are also concerns about the balloon effect. If the vendor bears all the costs of the risk of investment failure, the sales commission or commissioning cost increases, and the manager who has to pay it can be driven to a higher risk investment. In the end, only disputes between sellers and consumers can intensify.

An official from a financial sector who is well versed in private equity funds said, “If a fund loses, everyone will try to take it to court.” .

/ Reporter Kim Sang-hoon [email protected]

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