Hyun Sang YOUN (US) Foreign Attorney
A Guide to Selling Offshore Funds in South Korea
I. Introduction
In recent years, South Korean institutional investors have significantly increased their overseas investments as record-low interest rates and unfavorable market conditions at home have limited profitable investment opportunities in Korea. The National Pension Service, the country’s largest institutional investor, which currently manages more than 800 trillion won in assets, invested roughly 23 trillion won (approximately $20.4 billion) in overseas assets in 2020 alone, and it has announced a plan to further expand its overseas allocations over the next few years. Amid the growth of Korean overseas investments, global asset managers are increasingly finding Korea to be an attractive destination for finding new investors to whom they can market and sell their investment products.
This article provides a brief guide to marketing and selling offshore funds in Korea.
II. Offshore Fund Registration in Korea
Under the Financial Investment Services and Capital Markets Act of Korea (the “FSCMA”), all offshore funds marketed or sold to Korean residents must be registered with the Financial Supervisory Services of Korea (the “FSS”) in advance, and they must be marketed or sold through a locally licensed distributor, such as Korean banks and securities companies that are licensed to distribute fund products.
Generally speaking, to register an offshore fund with the FSS, the fund and its asset manager must satisfy certain eligibility requirements, which vary depending on whether the fund is marketed to certain qualified professional investors only, or it is offered to general investors. Since most of the offshore funds sold in Korea are private funds marketed only to certain professional investors, the scope of this article is limited to the legal requirements applicable to the registration of such privately placed funds.
The eligibility requirements for offshore private funds placed to qualified professional investors are as follows:
- The fund should have been established lawfully in accordance with the laws of its home country, and its constitutional documents should not contain any terms contrary to any Korean law or regulation, or the interests of Korean investors;
- The fees and expenses to be incurred by investors should be clearly stated in the fund documents;
- The fund manager should not have been subject to any suspension of business or major administrative sanctions, or to criminal fines or criminal penalties, by Korean regulators in the recent three years;
- The fund manager should have a track record with the management of similar funds (which can be shown by presenting audited financial statements proving the same); and
- The fund manager, trustee/custodian, distributor, and administrator of the fund should not have been subject to a suspension of business.
Procedurally, the following steps are required to register all private funds. The applicant prepares a fund registration application and supporting documents, which include (among others) the offering documents of the fund and documents evidencing the satisfaction of the eligibility requirements discussed above. The applicant must then have a pre-filing consultation with an FSS officer and supplement the application package as requested by the officer. Once the FSS officer finds the application to be in order, the application is officially submitted to the FSS electronically. Because of the large volume of the applications, now it generally takes about four to five months for the registration to be completed.
Once a fund is registered and becomes operational, the fund must comply with certain ongoing compliance requirements. These ongoing requirements include filing reports on fund sales to the FSS, keeping investors informed of the asset management performance and the base price of interests (i.e., NAV per share or unit), reporting changes in any registered information regarding the fund, and paying the annual registration tax.
III. Asia Region Funds Passport
On May 27, 2020, Korea implemented the Asia Region Funds Passport (the “ARFP”), which essentially allows funds registered as ARFP funds in any of the ARFP-member countries (i.e., Korea, Australia, New Zealand, Japan, or Thailand) to be offered and sold in any other ARFP-member country through a simplified registration process. Thus, ARFP funds registered in Australia, New Zealand, Japan, or Thailand may be publicly offered in Korea through a fast-track registration process without an eligibility review.
Please be informed, however, that regardless of whether or not a fund is ARFP-registered in its home country, any ARFP fund sold in Korea must still comply with all applicable Korean laws and regulations, including the obligation to sell such funds through a locally licensed distributor, and to satisfy all ongoing compliance requirements.
IV. Conclusion
While fund registration in Korea may seem like a procedurally straightforward process, it is extremely important that the application package be prepared properly and that consultations with FSS officers conclude smoothly, in order to ensure the timely administration and processing of a fund’s registration application.
We have extensive experience in assisting with the registration of offshore funds in Korea, including consultations with regulatory authorities. We have represented TPG, Macquarie and other major international asset managers, and the types of funds we have successfully registered for clients include US limited partnerships, Luxembourg partnerships, Australian stapled trusts, exempted companies organized under the Cayman Islands law, and segregated portfolio companies in the Cayman Islands.
Mr. Hyun Sang Youn who worked as a general counsel for global asset managers has deep business acumen and technical experience built over decades of experience, and based on our in-depth understanding of various overseas fund types and fund business, we ensure that the registration process runs smoothly, from document preparation to consultation with the regulatory authorities, and that our clients are able to get their registration completed timely and accurately.
If you have any inquiries regarding fund registration in Korea, please contact below:
Hyun Sang Youn (hsy@law-lin.com)
Ye Jin Han (yjhan@law-lin.com)