South Korea's financial regulator announced plans to increase scrutiny of investments by domestic pension funds, state-run retirement schemes and other local institutions in overseas private credit, citing a rapid rise in outstanding balances and growing global attention to private credit funds.
In a statement, the Financial Supervisory Service (FSS) said the outstanding balance of private credit investments held by Korean pension funds and other government-controlled retirement funds climbed 55.3% to 25.4 trillion won as of the end of February, up from 16.3 trillion won in 2023. The FSS also reported that brokerages, insurers, credit unions and other local financial institutions had roughly 30.5 trillion won of exposure to private debt as of February.
The watchdog said the majority of South Korea's private credit exposure is concentrated in debt issued in the United States or Europe. It noted that while domestic banks maintain limited positions tied to credit in the technology sector, state-run funds have materially larger exposure to that sector, amounting to 21.8%.
Globally, regulators have tightened oversight of the private credit market, which the FSS described as a $3.5 trillion industry. The FSS highlighted recent investor behavior that has raised questions about liquidity and market sensitivity, noting that some wealthy investors have queued to withdraw capital from a popular category of private credit funds amid concerns about possible disruption from artificial intelligence to parts of the industry. The FSS also referenced reports that HSBC had paused a $4 billion plan to invest in its own private credit funds.
Despite those developments, the FSS assessed that investment risk related to private credit holdings in South Korea remains at a "manageable level" and indicated liquidity risks were not excessive. It said exposure to private credit products accounted for less than 1% of total asset value at South Korean financial firms, with government-run funds showing a comparable level of risk.
The FSS added that most of the relevant Korean funds are structured as closed-end vehicles, which do not permit investors to request redemptions before maturity. Given evolving market trends, the regulator said it will continue to monitor conditions closely for a period of time.
Exchange rate used for reference in the FSS statement was $1 = 1,506.2600 won.
Summary
The Financial Supervisory Service will step up oversight of domestic pension funds, state-run retirement programs and other local institutions investing in overseas private debt after a 55.3% increase in holdings by pension and government-managed funds. Overall exposure among local financial firms stood at about 30.5 trillion won as of February, and the regulator said risks are currently manageable but will be monitored closely.