[Exclusive] PEF Market Grows to KRW 167 Trillion, but FSS Inspection Capacity Stays "Stagnant"

Number of PEF managers and committed capital surged over five years
Number of inspectors and inspections remained unchanged
Large gap compared with similarly sized sectors

The Financial Supervisory Service (FSS) has fewer inspectors and conducts fewer inspections of the institutional-only private equity fund (PEF) market than it does in sectors of a comparable size, despite the market’s investment volume exceeding 167 trillion won and the number of managers approaching 500. Given the social repercussions of incidents such as the Homeplus crisis and illicit gains from the use of undisclosed information by members of a business club at a prestigious university, there are concerns about gaps in oversight relative to the importance of the PEF sector.

According to materials submitted by the FSS to the office of Assemblyman Park Sanghyuk, a member of the National Assembly’s Political Affairs Committee, six employees on Inspection Team 4 of the Financial Investment Inspection Bureau 3 are responsible for inspecting PEFs and their managers, known as general partners (GPs). From October 2023 to December 2024, the work was handled by the six members of Inspection Team 1 in the same bureau. Inspection Team 4 has been responsible since January 2025. The FSS said, "The team responsible for institutional-only PEFs and GPs also oversees financial companies, including securities firms, asset management companies and real estate trust companies." Since amendments to the Capital Markets Act in 2021 gave the FSS authority to inspect PEFs and GPs, it has conducted 25 inspections through September this year, including 22 last year. The FSS has also completed inspections of 16 of the 25 GPs and imposed sanctions on six. It said that this year it had completed inspections of three GPs through September and would conduct additional inspections of two GPs in the second half of the year.

The sector has grown, but the number of inspectors and inspections has remained "stagnant." According to the FSS, at the end of last year there were 1,195 domestic PEFs and 455 managers (GPs). Their capital commitments totaled 167.5 trillion won, while the amount invested reached 124.3 trillion won. At the end of 2021, there were 1,050 funds and 394 GPs, with commitments and investments of 115.6 trillion won and 87.1 trillion won, respectively. This represents an increase of 13% to 15% in the number of funds and GPs, and growth of 43% to 45% in the monetary amounts. By contrast, the number of inspectors has remained at six since 2023, while the number of inspections has also held steady at two to six a year.

The number of inspectors and inspections is also lower than in comparable second-tier financial sectors, such as savings banks. As of June this year, mutual savings banks had total assets of 120.6 trillion won, slightly below the PEF sector's capital commitments, and there were 79 savings banks. At least 15 employees are responsible for inspecting savings banks, across Teams 1 to 3 of the Small and Medium Finance Inspection Bureau 1. Including the five-member ongoing surveillance team, the total reaches 20. Credit card companies, which are slightly larger, with total assets of 200 trillion won, are overseen by Teams 1 and 2 of the Small and Medium Finance Inspection Bureau 3. A minimum of 10 inspectors are assigned, and in some cases up to 26 are involved, including the planning and ongoing inspection team. From 2021 through last year, 525 inspections were conducted in the small and medium-sized retail finance sector, covering savings banks, credit cards, capital finance and mutual finance. The joint inspections of savings banks conducted by the Korea Deposit Insurance Corporation and the FSS alone totaled 36 over the past five years, or six to eight a year. Of course, it should be considered that PEF investments are made at the LPs' (limited partners') own risk and have less impact on consumers than second-tier financial institutions, which is why they are subject to different regulations.

When major incidents with broad social repercussions occurred, the FSS had operated dedicated inspection teams for general PEFs, which do not receive capital from institutional investors. PEF managers are divided into managers of general PEFs and managers of institutional-only PEFs, which receive investments from institutional investors. After large-scale losses among individual investors in 2020 related to funds such as Lime and Optimus, the FSS began a comprehensive inspection of specialized PEF managers in May that year and established and operated a dedicated inspection task force through October 2023. According to materials submitted by the FSS, the task force maintained a staff of around 30 a year and conducted a total of 127 inspections over four years. After the task force was disbanded, the FSS also inspected 89 managers, completing its comprehensive inspections.

Calls are growing to strengthen inspection capabilities, as the same violations keep recurring within the sector. Of the six sanctions imposed on institutional-only PEFs and GPs, four involved violations of the prohibition on LPs interfering in GPs' core duties. Even when LPs invest in a GP's fund, they are not permitted to take part in the GP's core work, such as selecting target companies for investment. However, the practice of LPs becoming involved in selecting target companies and acquiring equity stakes continues to recur.

Assemblyman Park Sanghyuk said, "Although institutional-only private equity funds have had an increasingly significant impact on society, as seen in the Homeplus crisis, the FSS has had far fewer inspectors and conducted far fewer inspections than in other sectors. To restore order in the capital markets, the FSS should consider establishing a dedicated inspection unit or adding staff."

This content was produced with the assistance of AI translation services.