In its short history, the year-old Indirect Investment Asset Management Business Act has continued to evolve. On October 14 2004 the Ministry of Finance and Economy announced that the Act's implementing presidential decree will be revised to introduce a new type of investment vehicle, called the private investment specialized company (samo tooja junmoon hoesa, or more generally known as a private equity fund (PEF)).
According to the Ministry, both individuals and corporations may invest in a PEF, but the number of members in a PEF may not exceed 50 and investors in a PEF cannot be solicited through advertisements in newspapers, on TV, or in magazines. There will be restrictions on the investment amounts for individuals and entities (W2 billion ($1.8 million) for individuals, andW5 billion for entities) and on the operation of the PEF's assets - at least 60% of the assets must be invested for management participation purposes. A PEF's portfolio investment may not be more than 5% of its total assets and if a PEF desires to own more than 10% of the total equity of a bank, it will have to satisfy certain requirements under the Banking Act that are imposed on bank shareholders. If a foreign shareholder is an unlimited-liability member of the PEF or owns at least 30% of the PEF, the foreign shareholder is also required to satisfy the same requirements.
The Korean capital markets have drawn increased attention since the Indirect Investment Asset Management Business Act was enacted on January 4 2004. The Act combined two laws previously known as the Securities Investment Trust Business Act and the Securities Investment Company Act and it aimed to restore investors' confidence in indirect investment vehicles. It introduced various steps to protect investors' interests, and measures to ensure fair competition in the indirect investment market by applying a uniform law to all kinds of indirect investment vehicles.
The revisions are effective as of December 6 2004.
Edward S Kim