Establishing private equity funds (PEFs) in Korea is now possible under the amended Indirect Investment Asset Management Business Act (IIAMBA), which took effect as of December 6 2004.
A PEF is established in the form of a limited partnership (hapja hoesa in Korean), comprising both general partners and limited partners with a minimum capital contribution of W2 billion ($1.98 million), for individuals or W5 billion, for corporations.
The main business objectives of PEFs are to increase the value of the investee company and to distribute to their partners any profits derived from that increase in value. The IIAMBA mandates that every PEF: (i) acquire at least 10% of the issued and outstanding shares or make a capital contribution equal to at least 10% of the existing capital of the investee company; or (ii) obtain actual management control over that company within six months of the date of initial acquisition of shares or interest in the company. Further, IIAMBA requires PEFs to invest at least 60% of their capital within one year of establishment in acquiring shares in investee companies.
With expectations that financial institutions will become actively involved in PEFs in Korea, the Financial Supervisory Commission of Korea (FSC) plans to promote the use of special purpose vehicles or subsidiaries of financial institutions to reduce risks arising out of their investments.