Trillions of won at risk, Kofia asks for understanding
Korea Financial Investment Association (Kofia) Chairman Nah Jae-chul apologized, asked for understanding and promised to make efforts to protect investors following a rash of misconduct in the private equity space.
“As a person who represents the financial investment industry, I would like to apologize to the investors for what has happened [this year],” Nah said at a press conference held at the Federation of Korea Industries building in Yeongdeungpo District, western Seoul Thursday. “We will strengthen self-regulation and improve internal systems to prevent similar cases from occurring in the future with a detailed action plan to do so.”
Kofia is a self-regulatory organization with a membership that includes securities dealers, asset managers, future dealers and real estate trusts.
This year, private equity has been tarnished by a slew of financial fiascos. Lime Asset Management has failed to return around 1 trillion won ($830 billion) of funds to investors, and Optimus is holding back 90.6 billion won of investment. As of June, more than 5.2 trillion won of investment is at risk.
The organization said it will strengthen cross surveillance by parties involved in private equity.
“We are under discussions with financial regulators to strengthen mutual surveillance between private brokerage services, or mediators between brokerage houses, and private equity funds, sellers and asset management companies,” said Nah.
It’s planning to conduct a full-fledged investigation into private equity fund members and plans to send a list of questions to private equity funds to so they can self-assess their risk management. The organization will offer consulting services and education for firms that do not meet the standards.
The financial group asks the public to avoid making hasty judgments regarding the industry based on misconduct by a small number of firms.
Rather than changing the law on private equity, a better solution is to promote a law-abiding spirit and strengthen regulation in the industry, the organization said.
“We hope the public judges the current system with a cool head. We want people to know there are a lot of players in the industry that play by the rules,” said Shin Dong-joon, an official from the asset management division.
“Many private equity funds are limited in resources and adequate personnel. We will help compensate for such shortcomings. To prevent similar problems, asset management firms need to be stronger and more competent.”
Regarding a possible broadening of the capital gains tax, Chairman Nah said he “thinks highly” of the government’s decision, and said he will closely communicate with officials to improve sections of the proposed changes. Finance minister Hong Nam-ki recently announced that the government will impose a 20 to 25 percent tax on capital gains exceeding 20 million won for retail investors, starting by 2023.
Nah hinted at some key changes it is working on with the government for the second half of this year.
The business group plans to actively support the government in coming up with policies to support the public fund market. It’s also in talks to expand the use of the individual savings account system by individual investors.
“In the new normal, an era of low-interest rates and slow economic growth, the financial market should be a partner that helps increase the assets of ordinary people. We will improve the structure and the fundamentals of the overall finance industry to provide opportunities for all participants to grow together,” Nah said.
BY KANG JAE-EUN [firstname.lastname@example.org]