The Ministry of Finance and Economy (Mofe) has presented a draft amendment of the Collective Investment Asset Management Business Act (CIAMBA) to include a new chapter on private equity funds and hedge funds (private investment vehicles).
The purpose of the amendment to the CIAMBA, which already combines the rules of the Securities Investment Company Act (providing for rules relating to mutual funds) and the Securities Investment Trust Business Act, is to promote the use of private equity funds by providing basic guidelines for their establishment and by neutralizing the application of restrictions that may hinder their effective use, thereby allowing greater opportunities for long-term investments that encourage the use of floating funds, and introducing new forms of asset management and corporate restructuring opportunities for financial institutions and businesses.
The new provisions provide for the establishment of private investment vehicles, which take the form of limited partnerships as defined under the Korean Commercial Code, where the partners (both general and limited) participate in the ownership and management of the target (invested) company and anticipate long-term profits from their investment by improving the target's business and management structure.
According to the amendment, the partnership is limited to certain types of investment methods: for example, investments in derivatives issued by the target company, investments into social overhead capital facilities through special purpose companies set up under the Private Participation in Infrastructure Act, and investments into other special purpose vehicles.
In principle, to qualify as a private investment vehicle under the new provisions the partnership's minimum investment must be 10% or more of the total number or value of the shares issued by the company, or an investment that allows the investor to exercise effective management and control over the company. The new provisions also demand, in most cases, that the investments be locked-in for six months after the minimum required investments are obtained.
Other relevant guidelines include prohibitions against a general partner selling its invested shares in the target company unless the articles of incorporation provide otherwise (and with the unanimous agreement of the other partners). In this case, the relevant partner's entire shares must be sold. Also, to promote the use of these investment vehicles, the amendment either relaxes or precludes entirely the application and restriction of various related laws, such as the Monopoly Regulation and Fair Trade Act and the Financial Holding Company Act.
Youngju Christine Park
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