Introduction: An Inflection Point in the Korean Capital Markets Where Corporate Value Enhancement and Strengthened Governance Discipline Converge

From the latter half of the 2010s until around 2021, Korea’s capital markets experienced rapid expansion against the backdrop of prolonged low interest rates and abundant liquidity. During this period, overseas real estate investments and large-scale buyout transactions became increasingly active. In parallel, policy discussions aimed at mitigating the so-called Korea discount through improvements in corporate governance and the enhancement of shareholder value were advanced concurrently.

However, as the macroeconomic environment shifted into a high interest rate regime and a phase of monetary tightening from 2022 onwards, structural vulnerabilities embedded in investment frameworks formed during the prior growth cycle began to surface across the capital markets in earnest. The materialisation of losses from overseas real estate investments, together with major events such as MBK Partners’ investment in Homeplus, clearly demonstrate the need, beyond issues of individual investment performance, to re-examine the design of collective investment vehicle structures, risk management practices over extended investment horizons, the scope of responsibility borne by collective investment managers, and the practical effectiveness of investor protection mechanisms.

These developments suggest that Korea’s capital markets have entered a structural inflection point, moving beyond a phase of quantitative growth towards one that requires adaptation to changing macroeconomic conditions. Against this backdrop, the following discussion undertakes a comprehensive review of:

• corporate value enhancement policies aimed at addressing the Korea discount and the evolving role of institutional investors;
• operational and supervisory issues relating to private collective investment schemes and private equity fund managers within the capital markets, with particular emphasis on collective investment vehicles; and
• dispute trends and regulatory tightening in connection with losses arising from overseas real estate investments.

Through this analysis, the discussion seeks to assess the principal issues currently confronting Korea’s capital markets and to consider the likely future direction of regulation and supervision.

Addressing the Korea Discount and the Governance Role of Investment Funds

Addressing the Korea discount and corporate value enhancement (“Value-Up”) programmes, and the revision of the Stewardship Code

Background and policy framework of the Value-Up Programme

The “Korea discount”, which has been pervasive in the Korean equity markets, refers to the phenomenon whereby the market valuation of domestic listed companies is depressed due to structural limitations in corporate governance practices and shareholder return policies. In order to mitigate this issue, the financial authorities introduced a corporate value enhancement programme in 2024 (the “Value-Up Programme”).

The Value-Up Programme is intended to encourage listed companies to formulate and publicly disclose medium- to long-term plans for enhancing corporate value, thereby addressing the chronic undervaluation of the Korean stock market. By way of example, companies are encouraged to analyse the underlying causes of low price-to-book ratios and return on equity, and to develop and disclose strategies at the board of directors level for improving such indicators.

In parallel, the Financial Services Commission, drawing on the experience of the Tokyo Stock Exchange in Japan, announced a series of related measures, including:

• the establishment of voluntary disclosure guidelines;
• the provision of incentives for companies demonstrating exemplary disclosure practices; and
• the development of indices and exchange-traded funds composed of companies exhibiting high dividend payouts or strong capital efficiency.

In particular, the authorities have required that corporate governance reports include a company’s corporate value enhancement plan, and have also prepared a regulatory basis under which failure to do so may be assessed as a violation of disclosure obligations, such as the omission of material information, potentially giving rise to regulatory sanctions.

This framework effectively imposes on listed companies an obligation to provide full and faithful disclosure of material information affecting share prices, including shareholder return policies, financial structure improvements and long-term investment plans, and exposes non-compliant companies to the risk of sanctions under the Capital Markets Act. In short, the Value-Up Programme may be understood as a policy mechanism designed to structurally alleviate the Korea discount by inducing companies to conduct self-assessments of the causes of undervaluation and to articulate responsive measures.

Revision of the Stewardship Code and the strengthening of the role of institutional investors

In tandem with these policy developments, the Stewardship Code (setting forth the principles of responsible investment applicable to institutional investors) was also revised. The Stewardship Code guidelines, as amended in 2024, now include provisions requiring institutional investors to examine whether their investee companies have established and are implementing corporate value enhancement plans.

Specifically, the Korean Stewardship Code, which has been voluntarily adopted by more than 222 domestic institutional investors, including public pension funds and asset management companies, now expressly recommends that signatories assess whether investee companies have formulated and are executing medium- to long-term corporate value enhancement plans and are engaging in effective communication with the market regarding such initiatives.

As a result, institutional investors have come to treat a company’s value enhancement efforts as a material consideration in investment decisions and the exercise of voting rights, while listed companies have increasingly begun to voluntarily disclose their Value-Up strategies in response to the expectations of institutional investors. In practice, the financial authorities convened a roundtable with major institutional investors in March 2024 to discuss measures to strengthen the Stewardship Code and encouraged investors to continue pressing undervalued companies to pursue corporate value enhancement initiatives. These developments reflect a policy orientation aimed at achieving improvements in corporate governance and the enhancement of shareholder value through active engagement by institutional investors.

Strengthening minority shareholder rights: key amendments to the Commercial Act in 2025

Enhancing the effectiveness of cumulative voting

The amendments to the Commercial Act promulgated in 2025 introduced significant changes to the corporate governance framework in Korea. The second set of amendments to the Commercial Act focused primarily on strengthening the effectiveness of cumulative voting for large listed companies and expanding the scope of separate elections for audit committee members.

Pursuant to the second amendment to the Commercial Act promulgated on 9 September 2025, large listed companies are no longer permitted to exclude the cumulative voting system through their articles of incorporation, thereby constraining the long-standing practice under which many companies had effectively rendered cumulative voting inoperative through charter provisions. As a result, shareholders of large listed companies are now able to utilise cumulative voting in the election of directors, which expands the scope for minority shareholders to exercise a meaningful degree of influence over the composition of the board of directors.

Expansion of separate elections for audit committee members and the 3% voting cap

The framework governing the election of audit committee members has also been strengthened. Under the prior regime, listed companies were required to elect one audit committee member separately from the election of directors. The second amendment to the Commercial Act expands the scope of separate elections by increasing the minimum number of audit committee members subject to separate election to two. As a result, large listed companies are now required to elect at least two audit committee members independently of the election of directors.

It should be noted that the provision limiting the voting rights of controlling shareholders and their related parties to 3% in the election of audit committee members was not newly introduced under the second amendment to the Commercial Act. Rather, this restriction had already existed under the previous version of the Act but its method of application and scope were revised under the first amendment to the Commercial Act promulgated in July 2025.

Implementation schedule and corporate preparatory measures

These amendments to the Commercial Act are generally understood as measures intended to constrain, to a certain extent, the influence of controlling shareholders in large listed companies and to enhance the independence of boards of directors and audit committees, thereby strengthening transparency in corporate governance and shareholder protection.

Efforts to enhance the practical effectiveness of the amended provisions are also continuing. Although the revised Act is scheduled to apply to shareholders’ meetings from September 2026, companies have begun to proactively restructure their annual general meeting procedures and investor relations strategies. By way of example, companies are preparing for the possibility of an increase in shareholder proposals demanding the use of cumulative voting at annual general meetings and are adjusting their director nomination processes and proxy voting management practices accordingly. While some companies may seek to minimise the impact of cumulative voting through amendments to their articles of incorporation or adjustments to the size of the board, excessive reliance on such circumvention strategies may invite market criticism in light of the underlying legislative intent of the reforms.

The rise of activist funds and changes in the governance landscape

Background to the expansion of shareholder activism

Against the backdrop of these corporate governance reform initiatives, the activities of both domestic and foreign activist funds have increased sharply in recent years. Although the Korean equity market showed strong performance between 2023 and 2025, driven primarily by large-cap stocks such as semiconductor companies, the performance of activist funds, which tend to focus on small- and mid-cap value stocks, lagged behind the broader market indices. As a result, activist funds have intensified shareholder engagement directed at undervalued companies in an effort to enhance investment returns.

Key cases and recent developments

By way of specific examples, Align Partners, a leading domestic activist fund, attempted public tender offers for shares of Aplus Asset and Gabia, mid-sized financial and information technology companies, towards the end of 2025, increasing its equity stakes in each company to approximately 12%. Although Align Partners did not reach its target ownership levels, it succeeded in expanding its shareholdings from less than 5% to the low-teens within a relatively short period, thereby establishing a meaningful degree of influence.

At the same time, Align Partners escalated its activist campaign by sending public letters to Coway, a home appliance rental company, and to STIC Investment, an investment firm, urging measures such as the enhancement of board independence, the cancellation of treasury shares, and the disclosure of corporate value enhancement plans. In this manner, activist funds have increasingly submitted successive shareholder proposals calling for measures to enhance shareholder value, including dividend increases, treasury share cancellations and the disposal of non-core assets, on a company-by-company basis.

More recently, Life Asset Management publicly challenged the process for appointing the next chairperson of BNK Financial Group, citing the candidate’s weak management performance and low price-to-book ratio, and declared its intention to respond through a shareholder coalition at the shareholders’ meeting. In a separate case, VIP Asset Management acquired more than 5% of the shares of Lotte Rental, whose largest shareholder is the private equity firm Affinity, and signalled the possibility of participation in management while applying pressure for the withdrawal of a proposed capital increase or, alternatively, for the use of the proceeds of such capital increase for shareholder return purposes.

In this manner, multiple funds are simultaneously exerting influence over the corporate governance and capital allocation practices of Korean companies, with companies across a broader range of industries and market capitalisations becoming targets of shareholder activism compared to the past.

Expansion of shareholder proposals and institutional investor engagement

The recent acceleration of shareholder activism may be understood as a gradual but sustained trend that operates in conjunction with the institutional and regulatory changes discussed above. The recently introduced Value-Up Programme has also been assessed, in this context, as having played a role in formalising policy concerns regarding corporate undervaluation and shareholder value enhancement, while drawing heightened market attention to these issues.

Accordingly, investors are increasingly inclined to express their views more assertively regarding companies’ corporate value enhancement efforts, and shareholder proposals demanding measures such as dividend increases or structural reorganisations are becoming more prevalent in cases where companies are perceived as responding inadequately. Indeed, during the 2025 annual general meeting season, shareholder proposals expanded broadly across the market, extending beyond individual companies and focusing on matters such as:

• the adoption of cumulative voting;
• governance improvements through amendments to articles of incorporation; and
• constraints on excessive use of treasury shares.

The fact that such proposals were raised across a wide range of listed companies, rather than being confined to specific industries or company sizes, suggests that the manner in which shareholder rights are exercised is undergoing a structural transformation.

Implications for investment funds and corporate governance risk

Broadening impact across fund types

Strengthened corporate governance regulations and stewardship obligations are exerting wide-ranging effects not only on traditional public funds and exchange-traded funds, but also on private collective investment schemes, private equity funds and discretionary investment mandates in various forms.

In particular, large public pension funds, mutual aid associations and asset management companies, as well as certain private equity fund managers, have begun to participate in the Korean Stewardship Code or to adopt comparable principles through internal guidelines, and are increasingly monitoring the environmental, social and governance practices and corporate governance improvements of their investee companies. As of 2025, the number of institutions that have signed on to the Stewardship Code exceeds three hundred, encompassing a broad spectrum of institutional investors, including public pension funds, insurance companies, public and private asset managers, and venture capital firms.

Within this environment, managers of exchange-traded funds and public funds are more likely to exercise voting rights actively at shareholders’ meetings, either to press companies to adopt Value-Up plans or to support demands for improvements in dividend policies. At the same time, private investors such as private equity funds and hedge funds are diversifying their strategies by exploring opportunities for participation in the management of undervalued listed companies.

By way of example, certain domestic private equity funds have adopted a more assertive posture by publicly articulating demands for management improvements following equity acquisitions and, where necessary, by signalling a willingness to engage in control contests. This marks a departure from the traditionally passive role of private capital as a purely financial investor.

Reassessment of corporate governance risk

A reassessment of corporate governance risk is becoming unavoidable. Historically, foreign investors have applied a discount to the Korean equity market by treating factors such as low shareholder return ratios, circular shareholding structures and related-party transactions, and a lack of transparency in corporate governance as risk premia.

More recently, however, these risk factors show signs of being materially mitigated as a result of policy and institutional reforms, coupled with enhanced monitoring through investor activism. In fact, during 2025 the Korean equity market recorded a higher rate of increase relative to global markets, driven in part by expectations of governance reform, and foreign capital inflows have also increased. Global investment institutions are closely observing whether Korea can follow a trajectory similar to that of Japan by transforming the Korea discount into a Korea premium, and have begun to consider upward valuation adjustments in corporate valuation models to reflect improvements in corporate governance.

That said, sustained observation is required to determine whether institutional changes will translate into meaningful changes in corporate practices. If long-standing challenges such as owner risk and the prevention of excessive control by dominant shareholders are addressed to a meaningful extent, the structural discount historically applied to Korean companies may narrow, giving rise to a broader reassessment of valuations.

Outlook

The corporate governance reform policies introduced over the past two to three years, together with the expansion of active shareholder rights exercised by institutional investors, are reshaping the role of the Korean fund industry as a whole. Investment funds are increasingly acting not merely as financial investors but also as catalysts for improvements in corporate governance, a development that is expected to contribute to the alleviation of the Korea discount and the sustainable enhancement of corporate value.

In this evolving environment, market participants in the investment industry face a growing need to do the following:

• carefully assess strengthened regulatory requirements and market expectations;
• reassess corporate governance risk in Korean companies when formulating investment strategies; and
• consider more active engagement practices.

The current trend towards an enhanced governance role for investment funds represents a positive signal for improving the transparency and attractiveness of Korea’s capital markets, and is likely to continue driving advancements in corporate governance and investor confidence in the years ahead.

A Turning Point in the Korean Investment Funds Market: Focus on the MBK–Homeplus Case

The MBK matter and the reassessment of the scope of GP responsibility

The situation arising from MBK Partners’ investment in Homeplus has served as a catalyst for substantive debate within the Korean investment fund market regarding fund structures and the scope of responsibility borne by fund managers. While the matter may, at first glance, appear to concern post-acquisition management issues in a large private equity transaction, supervisory authorities and market participants have come to view it as a case in which structural risks materialised against the backdrop of a changed macroeconomic environment.

This case is particularly significant in that it has prompted a re-examination of issues that had previously received comparatively limited regulatory attention within Korea’s investment fund framework, including:

• the accumulation of risk over extended investment horizons;
• investor protection in the context of structural changes to fund arrangements; and
• the regulatory scope of responsibility applicable to general partners.

The Homeplus investment as a large-scale buyout fund transaction

Nature of the transaction and continuity of management

The acquisition of Homeplus, a major retail company, was regarded at the time as one of the largest transactions in the history of the Korean private equity market. MBK Partners acquired Homeplus through a private equity fund with the participation of multiple institutional investors and, following the acquisition, continued to exercise control as the general partner by leading operational strategies and key decision-making over an extended period. This investment may be understood not as a single discrete transaction, but rather as a case encompassing the full life cycle of a typical investment fund, from fund formation and acquisition through ongoing management and eventual exit.

Asset utilisation strategy and increased sensitivity to external conditions

Following the acquisition, Homeplus pursued a strategy of securing liquidity through the utilisation of its substantial portfolio of store sites and retail real estate assets. At the initial stage, this asset utilisation approach contributed to debt repayment and the stabilisation of the company’s financial structure, and, under the market conditions prevailing at the time, it was generally regarded as a reasonable management strategy.

Over time, however, the sale and leaseback arrangements involving real estate assets became an increasingly central component of Homeplus’s business operations and financial structure, which, at the fund management level, also operated to heighten sensitivity to changes in external market conditions.

Pressures arising from the rising interest rate environment and the rehabilitation filing

As a period of rapid interest rate increases emerged from 2022 onwards, the investment structure underlying Homeplus began to face substantial pressure. Interest expenses on outstanding borrowings rose sharply, while the ability to secure additional liquidity through further asset disposals became constrained amid a correction in the retail real estate market. As a result, refinancing terms for existing debt deteriorated, and financial pressures accumulated across the capital structure as a whole. Ultimately, in March 2025, Homeplus filed an application for corporate rehabilitation with the court.

In the course of this process, certain amendments to investment terms and restructuring measures implemented at the fund level began to be viewed as matters capable of affecting the interests of different categories of investors. In particular, supervisory authorities have focused not solely on discrete management decisions taken at specific points in time, but rather on how the general partner identified and managed the expansion of risk over an extended period, and on whether that process was consistent with investor protection principles.

These factual circumstances have contributed to framing the Homeplus matter as one that extends beyond a company-specific financial distress scenario, and into a broader discussion concerning governance and internal control issues arising in the course of fund management.

Supervisory intervention and the pursuit of severe sanctions

Following a comprehensive inspection of the overall fund management activities related to the Homeplus investment, the Financial Supervisory Service issued a prior notice of proposed severe sanctions against MBK Partners, including the suspension of business operations. This represents the first instance in which such severe sanctions have been proposed against a general partner, and is an especially exceptional measure when viewed in the context of enforcement actions against general partners of institution-only private equity funds. As a result, the proposed sanctions have had a significant impact across the market. The Financial Supervisory Service is expected to finalise the level of sanctions in the near future.

The reported grounds for the proposed sanctions include allegations of unsound business practices and violations of internal control obligations, as well as infringement of the interests of fund investors. This development suggests a regulatory shift beyond the traditional view of private equity fund management as being governed primarily by contractual arrangements, towards an approach under which supervisory authorities may impose sanctions for breaches of fiduciary or duty-of-care obligations.

Regulatory response and direction: strengthened supervision of structure and process

In the aftermath of the Homeplus matter, the Financial Services Commission and the Financial Supervisory Service have begun reviewing potential reforms to the regulatory framework governing private equity funds. According to an announcement by the Financial Services Commission dated 22 December 2025, key items under consideration include:

• introduction of a one-strike-out regime applicable to general partners;
• strengthening of fitness and propriety requirements for controlling shareholders;
• clarification of internal control and risk management standards; and
• expansion of reporting obligations for large-scale funds.

The Financial Supervisory Service has also announced plans to increase the number of inspections of general partners to more than five cases per year.

These developments are best understood not as a focus on ex post sanctions for isolated unlawful acts, but rather as a shift towards bringing the overall structure and operational processes of investment funds within the scope of supervisory oversight. In other words, as the influence of investment funds on the financial markets and the real economy continues to expand, there is a growing tendency to subject fund managers to a level of regulatory discipline comparable to that applied to financial institutions.

Given that a substantial portion of the measures announced by the Financial Services Commission and the Financial Supervisory Service would require amendments to existing statutes, close attention must also be paid to the legislative process in the National Assembly. What is clear is that, in the wake of the MBK–Homeplus matter, the influence of supervisory authorities over the Korean investment fund market is likely to increase. Going forward, market participants in the investment fund sector are likely to face heightened expectations to consider, from a regulatory perspective, not only the profitability of individual transactions at the fund formation and fundraising stage, but also risk management throughout the long-term investment period, fairness in the context of structural changes, and the robustness of the general partner’s internal control framework.

Disputes Arising From Losses in Overseas Real Estate Investments and the Tightening of Regulation

Materialisation of losses in overseas real estate investments

From the mid-2010s, Korea’s asset management industry actively expanded into overseas real estate investments against the backdrop of a prolonged low interest rate environment and growing demand for alternative investments. Office buildings, hotels, resorts and mixed-use development projects in North America and Europe were widely perceived as assets capable of generating stable rental income and providing diversification benefits. As a result, such investments gained popularity and were marketed broadly not only to institutional investors but also to retail investors.

However, a convergence of factors, including sharp interest rate increases following the COVID-19 pandemic, rising vacancy rates driven by structural changes in demand for commercial real estate, and the simultaneous maturity of a significant number of Korean real estate funds, has led to the visible realisation of losses in overseas real estate funds within the Korean fund market.

The crystallisation of losses in overseas real estate funds has not been confined to a deterioration in investment performance. Instead, it has given rise to large-scale disputes concerning issues such as mis-selling, breaches of the duty to explain, and the adequacy of risk disclosures. At the same time, financial supervisory authorities have begun to shift their supervisory approach away from a model centred on ex post sanctions, towards one that strengthens investor protection from the fund design and formation stages of overseas real estate funds. Against this backdrop, this section examines in a comprehensive manner the impact of overseas real estate investment losses on the Korean fund market, major dispute and litigation cases, and the evolving supervisory paradigm.

Background to the recent expansion of losses in overseas real estate investments

The expansion of losses incurred by Korean investors in overseas real estate investments can be attributed to the combined effect of three principal factors.

• First, the impact of the rapid interest rate increases that began around 2022 in the aftermath of the COVID-19 pandemic. A significant number of overseas real estate funds were structured on the basis of borrowings from local financial institutions. During the latter half of the 2010s, when overseas real estate investment activity expanded, interest rates were at historically low levels and abundant liquidity supported aggressive investment strategies. Following the post-pandemic surge in interest rates, however, interest expenses increased substantially, instances of breaches of loan-to-value covenants became more frequent, and the feasibility of refinancing declined markedly.
• Second, structural changes in demand for commercial real estate. The expansion of remote working arrangements and corporate strategies aimed at reducing office footprints following the COVID-19 pandemic exerted structural downward pressure on the value of office assets in major cities across North America and Europe. As a result, the profitability of a significant number of office-focused funds held by Korean asset managers deteriorated.
• Third, the leverage structures and maturity profiles of overseas real estate funds. Most overseas real estate funds were established as closed-end vehicles with terms of five to seven years. As loans obtained in a low interest rate environment at the time of investment reached maturity in the higher interest rate period between 2024 and 2026, many such funds encountered difficulties in refinancing or in executing asset disposals.

Disputes arising from overseas real estate investment losses and the perspective of financial authorities

As concerns have grown regarding principal losses in overseas real estate funds invested in by domestic asset managers, investors have begun filing complaints with the Financial Supervisory Service, alleging that risks were underestimated or insufficiently explained during the product distribution process. In particular, a central issue has been the discrepancy between marketing descriptions emphasising concepts such as stable rental income and core asset investments, and the reality that there existed a substantial risk of refinancing failure upon loan maturity, as well as the risk of enforcement of security interests. Once losses are crystallised through asset disposals, disputes are expected to intensify over whether the situation constitutes a mere investment failure or investor harm resulting from mis-selling.

The Financial Supervisory Service has initiated on-site inspections to determine whether mis-selling occurred in funds that have suffered total losses, and has indicated that, depending on the results of such investigations, the scope of inspections may be expanded to include other overseas real estate funds. From the perspective of the financial authorities, these investor complaints are viewed not simply as issues attributable to individual asset managers, but rather as cases that expose structural vulnerabilities inherent in the overall design and sales practices of overseas real estate fund products. In the course of inspections and reviews, the Financial Supervisory Service has repeatedly expressed concern that certain products presented worst-case loss scenarios in a manner that made them difficult for investors to intuitively understand, or described key risk factors only in abstract terms.

Accordingly, the Financial Supervisory Service has strengthened its position that institutional improvements are required to ensure that the risk structure of overseas real estate funds is clearly disclosed from the design and formation stages, rather than limiting its role to the handling of investor complaints or ex post dispute resolution. This perspective reflects a shift away from an approach focused solely on retrospective determinations of mis-selling, towards one that places at the centre of supervision and regulation the question of whether investors were able to meaningfully recognise and understand the substantive risks at the time of investment.

Regulatory improvement measures: embedding the “investor-first principle” at the design and formation stages

In a press release issued in December 2025 concerning improvement measures for overseas real estate funds, the Financial Supervisory Service emphasised, in light of cases involving total losses in certain overseas real estate funds, the need to embed an “investor-first principle” from the fund design and product manufacturing stages. The Financial Supervisory Service strongly urged the industry to take the lead in thoroughly reviewing and rectifying its overall operational procedures from the perspective of investors. The improvement directions presented by the Financial Supervisory Service are outlined below, with specific measures to be finalised at a later date.

First, asset management companies are required, at the product launch stage, to prepare and submit documentation detailing internal verification processes as an attachment to regulatory filings, in order to ensure a more systematic and rigorous assessment of risks. Specifically, the documentation must include records of on-site due diligence and internal review processes, as well as independent evaluation opinions from compliance and risk management departments. These materials are required to bear the signatures of the chief executive officer or, as applicable, the compliance officer and the chief risk officer, with the objective of establishing a self-filtering verification framework.

Second, standardised disclosure templates for key investment risks will be developed to enable the general public to intuitively understand the typical risks associated with overseas real estate funds. These disclosures will consolidate and present specific risks that may arise – including the use of leverage, lease structure mechanics, cash trap provisions and forced asset sales triggered by events of default – and will require detailed descriptions of how such risks may materialise depending on the degree of decline in property values.

Third, disclosures will be required to present the maximum potential losses that investors may incur under various scenarios in a quantitative and intuitive manner at the time of making an investment decision. In particular, fund performance under different property value decline scenarios will be illustrated graphically to visually demonstrate potential loss ranges.

Fourth, a heightened review regime will be introduced for overseas real estate funds, including the designation of multiple review officers and the elevation of approval authority prior to the acceptance of regulatory filings, in order to facilitate more rigorous examination.

Once the specific improvement measures are finalised, the Financial Supervisory Service plans to provide guidance and supervisory direction to asset management companies launching overseas real estate funds and to apply these measures strictly in future fund reviews. In addition, the Financial Supervisory Service intends to develop measures to clarify the respective roles, responsibilities and scope of accountability of asset managers and distributors, and to solicit feedback from relevant industry participants.

Implications

Losses arising from overseas real estate investments have exposed structural vulnerabilities in Korea’s alternative investment fund market, while at the same time serving as a turning point for the reconfiguration of market structures and supervisory frameworks. In the short term, product launches are likely to contract and supervisory burdens to increase. Over the medium to long term, however, more conservative structural design, enhanced disclosure of investment risks and clearer allocation of responsibility are likely to become established as new market standards.

Even if accompanied by short-term disruption, these developments are expected to reduce the risk of mis-selling based on unwarranted optimism and to provide a foundation for the formation of a more sustainable alternative investment market in Korea.