South Korea's financial regulator has convened domestic securities firms to demand preemptive risk management measures amid growing concerns over the health of the U.S. private credit market. Korean investors hold approximately 17 trillion won ($11.7 billion) in private credit fund investments.
The Financial Supervisory Service on the 4th held a meeting with about 20 executives, including private credit fund managers and Chief Consumer Officers from 10 securities firms operating domestically. The session was chaired by Kim Wook-bae, Deputy Governor for Consumer Protection.
"We must proactively prepare for potential risks through soundness analysis of major industry sectors in overseas private credit funds," Kim said. "Reexamine liquidity risk management measures and upgrade risk management systems by preparing contingency plans in advance."
The FSS had previously summoned securities firm officials in mid-March following redemption suspensions at Blue Owl Capital, a U.S. private equity fund manager, which heightened market uncertainty. The latest emergency meeting was triggered by news that Blackstone, another major U.S. PE firm, had processed large-scale redemptions from its private credit funds.
Private credit funds pool investor capital to lend to corporations and generate returns. Retail private credit products first launched in Korea in 2023, gaining popularity among high-net-worth individuals. Domestic brokerages import these products through supply agreements with global PE managers.
According to FSS data, domestic investor holdings in private credit funds have grown sharply—from 11.8 trillion won in 2023 to 13.8 trillion won in 2024, reaching 17 trillion won last year. Retail investor holdings surged approximately 3.2 times, from 115.4 billion won in 2023 to 479.7 billion won last year. A default in any of these funds could raise investor protection concerns.
The FSS urged brokerages to thoroughly examine whether sales practices overemphasize profitability factors such as monthly dividends and high yields while downplaying key risk factors. Overseas private credit funds handle loans with more relaxed terms compared to traditional financial institutions, making it difficult to detect deterioration in borrower creditworthiness early. Risk measurement methods for non-marketable assets have inherent limitations, potentially leading to underestimated risk-return profiles and investor harm.
The FSS is reportedly considering individual examinations of certain brokerages with significant private credit fund exposure to assess their soundness.
"Firms should strengthen systems for obtaining information on overseas investee funds and market conditions, promptly inform investors of identified risks, and review product descriptions and sales scripts for potentially misleading language," an FSS official said.