SEOUL, May 26 (Reuters) – South Korea will step up monitoring investments by domestic pension funds and banks in overseas private debt, the country’s financial watchdog said on Tuesday, as regulators worldwide become more concerned about private credit funds.
The outstanding balance of private credit investments by Korean pension funds and other government-controlled retirement funds rose 55.3% to 25.4 trillion won ($16.86 billion) as of the end of February, from 16.3 trillion won in 2023, South Korea’s Financial Supervisory Service said in a statement.
Local financial institutions, including brokerages, insurers and credit unions, had about 30.5 trillion won worth of exposure to private debt as of February, the FSS said.
The bulk of South Korea’s exposure was to debt in the United States or Europe, the FSS said. While local banks had limited exposure to credit tied to the technology sector, state-run funds had 21.8% exposure to the sector, the watchdog said.
The announcement comes as global regulators tighten scrutiny over potential risks from the $3.5 trillion private credit industry.
Wealthy investors have queued up to withdraw money from a popular category of private credit funds amid concerns that AI could disrupt the industry. The Financial Times also reported last week that HSBC had paused a $4 billion plan to invest in its own private credit funds.
Still, the investment risk was at a “manageable level”, the FSS said, noting liquidity risks were not too high. South Korean financial firms’ exposure to private credit products accounted for less than 1% of their total asset value, while government-run funds also had a similar level of risk, it said.
These Korean funds are mostly closed-end, which means investors cannot request redemptions before maturity, according to the FSS.
The watchdog will monitor the situation closely for a while considering the market trend, the FSS said.
($1 = 1,506.2600 won)
(Reporting by Heejin KimEditing by Ed Davies)
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