[Exclusive] PEF Market Grows to 167 Trillion Won, but FSS Inspection Capacity Remains "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 other sectors of a similar size, despite the market having grown to more than 167 trillion won in investments and nearly 500 managers. Given the social repercussions of incidents such as the Homeplus crisis and the improper gains made by members of business clubs at prestigious universities who used nonpublic information, concerns are growing about gaps in oversight relative to the importance of the PEF sector.

According to data submitted by the FSS to the office of Assemblyman Park Sang-hyuk of the Democratic Party of Korea, a member of the National Assembly’s Political Affairs Committee, six inspectors on 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 Team 1 of the same bureau, which also had six members. Since January 2025, Team 4 has been responsible. The FSS said, “The team responsible for institutional-only PEFs and GPs also oversees financial companies, including securities firms, asset managers 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 2026, up from 22 as of last year. The FSS has completed inspections of 16 of the 25 GPs and imposed sanctions on six companies. It said it had completed inspections of three GPs through September this year and would conduct additional inspections of two more in the second half.

The sector has expanded, but the number of inspectors and inspections has “remained unchanged.” According to the FSS, at the end of last year there were 1,195 domestic PEFs and 455 managers (GPs). 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 capital commitments and investments totaling 115.6 trillion won and 87.1 trillion won, respectively. This represents a 13% to 15% increase in the number of funds and GPs, while the amounts grew by 43% to 45%. By contrast, the number of inspectors has remained at six since 2023, and the number of inspections has also stayed at around two to six a year.

The number of inspectors and inspections is also low compared with the secondary financial sector, including savings banks, which is of a similar scale. As of June this year, mutual savings banks had total assets of 120.6 trillion won, slightly less than the PEF sector’s capital commitments, and there were 79 savings banks. At least 15 inspectors are responsible for savings bank inspections, across Teams 1 to 3 of the Small and Medium-Sized Financial Institutions Inspection Bureau 1. Including the five-member continuous monitoring team, the total reaches 20. Credit card companies, which are somewhat larger in scale, with total assets of 200 trillion won, are overseen by Teams 1 and 2 of the Small and Medium-Sized Financial Institutions Inspection Bureau 3. A minimum of 10 inspectors are assigned, and up to 26 may be deployed when the planning and continuous monitoring team is included. From 2021 through last year, 525 inspections were conducted in the small and medium-sized and retail finance sector, covering savings banks, credit cards, capital companies and mutual finance institutions. Over the past five years, the Korea Deposit Insurance Corporation and the FSS also conducted 36 joint inspections of savings banks, or six to eight a year. Of course, it should be taken into account that PEF investments are made at the investors’ (limited partners’, or LPs’) own risk, that PEFs have less impact on consumers than the secondary financial sector, and that they are therefore subject to different regulations.

When major incidents with significant social repercussions occurred, the FSS had operated dedicated inspection teams for general PEFs, which do not receive investments 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 conducted a comprehensive inspection of professional private fund managers beginning in May that year, and established and operated a dedicated inspection team through October 2023. According to data submitted by the FSS, the team maintained a staff of around 30 a year and conducted a total of 127 inspections over four years. Even after the team was disbanded, the FSS inspected 89 managers and completed its comprehensive inspection.

Calls are growing to strengthen inspection capacity, as the same violations continue to recur across the sector. A review of sanctions against institutional-only PEFs and GPs shows that four of the six cases involving GPs concerned violations of the ban on LPs intervening in GPs’ core duties. Although investors may commit capital to a GP’s fund, they are not permitted to take part in the GP’s core duties, such as selecting investment targets. However, the practice of LPs getting involved in selecting target companies and acquiring equity stakes continues to recur.

Assemblyman Park said, “Even as institutional-only PEFs have had a growing impact on society, as seen in the Homeplus crisis, the FSS has had far fewer inspectors and conducted far fewer inspections than other sectors. To restore order in the capital markets, the FSS should consider establishing a dedicated inspection unit or increasing its staffing.”

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