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Newsletter | November 2015, Issue 3
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REAL ESTATE & CONSTRUCTION
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Real Estate Law Review – Amendments to FSCMA
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As mentioned in our banking & finance update earlier in this newsletter, the National Assembly adopted certain amendments to the FSCMA (the “Amendments”), which became effective on October 25, 2015. Generally, as it relates to real estate-related assets, this will change the existing regulatory scheme for private collective investments funds, and among others, includes the following changes:
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1. Changes in Existing Regulatory Scheme for Private Collective Investment Funds
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Under the current FSCMA, collective investment funds are classified into different categories based on the target investment and investor type.
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Under the Amendments, private funds will simply be classified into the following two categories: (i) “private qualified investor funds,” and (ii) “private management participation funds.”
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Until October 20181, asset management companies which existed on the effective date of the Amendments, are permitted to continue establishing private funds under the FSCMA as the law stood before the Amendments.
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Below we summarize certain differences between private funds under the FSCMA prior to the Amendments (excluding “qualified investor private funds”) (“Pre-Amendment Private Funds”), and “private qualified investor funds” under the Amendments (“Private QI Funds”).
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2. Regulatory Requirements Eased for Asset Managers of Private QI Funds
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Prior to the Amendments, asset managers had to obtain the approval of the FSS to operate a Pre-Amendment Private Fund for each target investment.
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Under the Amendments, asset managers need only registration with the FSS to operate a Private QI Fund, regardless of its target investment.
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3. Procedure for Establishing Private Funds Streamlined
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Prior to the Amendments, establishing a Pre-Amendment Private Fund required pre-registration with the FSS.
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Under the Amendments, when establishing a Private QI Fund, an asset manager only needs to make the report to the FSS within 2 weeks of establishment.
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4. Restriction Eased on Securities Acquisitions
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Prior to the Amendments, a real estate fund was required to invest at least 50% of its total assets in real estate-related assets (including securities related to real estate).
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Under the Amendments, even when its target investment is real estate, a Private QI Fund is not subject to the above restriction.
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5. Certain Financing Permitted
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Prior to the Amendments, the receipt of financing and the provision of guarantees or collateral for the benefit of third parties were strictly restricted.
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Under the Amendments, however, a Private QI Fund is permitted to obtain financing, provide guarantees and collateral, and invest in derivative products, so long as the aggregate amount of the foregoing does not exceed 400% of the net assets of the fund.
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6. Issuance of Multiple Types of Equity Interests
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Prior to the Amendments, Private Funds were permitted to issue only one type of equity interest.
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Under the Amendments, however, a Private QI Fund may issue multiple classes and types of equity interests in such fund.
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7. Limitation on Potential Investors in Private QI Funds
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While easing regulations on Private Funds, the Amendments limit investors eligible to invest in Private QI Funds to “Qualified Investors” who are able to bear potential losses, and any individual or entity investing more than a certain minimum amount prescribed by the Presidential Decrees of the Capital Markets Act.
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Three years after the Amendments became effective.
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Back to Main Page
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