1.

Specification of Regulatory Requirements for BDC Managers
 

• Licensing Requirements for BDC Managers
  
  Entities intending to establish a BDC must obtain a license to engage in the BDC management business. The key requirements for this license are as follows:
   

Meanwhile, an entity that already holds a license for the public collective investment business (3-1-1) will be deemed to have obtained a license for the BDC management business under the Enforcement Decree Amendment.
 

• BDC Operating Regulations
  
  A BDC must invest at least 60% of its total assets in "main investment target companies." These include (i) unlisted venture and/or innovative companies, (ii) venture investment associations and/or new technology investment associations that have completed their investments, and (iii) companies listed on KONEX and/or KOSDAQ (for KOSDAQ-listed companies, the market capitalization must not exceed KRW 200 billion). When calculating the minimum 60% investment ratio, investments in (ii) above and investments in KOSDAQ-listed companies (i.e., limited to those with market capitalization not exceeding KRW 200 billion) among (iii) may each account for up to 30% of the BDC's total assets, in order to prevent excessive concentration in a particular sector.
   
  Loans to main investment target companies are limited to 40% of the total investment in those companies, and any lending must be supported by an internal control system capable of assessing and/or managing the feasibility of such loans and changes in credit risk.
   
  Additionally, at least 10% of the BDC's total assets must be invested in safe assets (e.g., government and public bonds and cash) in light of investment risks. The remaining 30% of the assets, excluding investments in main investment target companies and safe assets, may be managed at the manager's discretion, subject to the regulations governing the management of public funds.
   

• Enhanced Investor Protections
  
  To ensure responsible management of BDCs, BDC managers are required to (i) contribute 5% of the total number of BDC collective investment securities (including additional units and new issuances) for offerings of KRW 60 billion or less, and 1% of the excess for offerings exceeding KRW 60 billion, and (ii) hold such fund interests for the longer of five years or one-half of the BDCs' maturity (up to a maximum of ten years).
   
  Moreover, BDC managers must organize an investment committee to ensure that BDCs' investment decisions are objective and fair. Investments may be made only after the investment committee has, based on assessment results from an external professional institution (such as an accounting firm), conducted a prior review of the growth potential, credit risk, and other relevant factors of the main investment target companies.
   
  Lastly, considering that BDCs are open to investment by the general public, BDC managers are required to make timely disclosures through the securities market regarding (i) any changes in investments exceeding 5% of the BDC's total assets, (ii) any material business events (e.g., bankruptcy, suspension of business, dissolution, capital changes, mergers, or transfers of important assets) concerning main investment target companies in which more than 5% of the BDC's total assets has been invested, and (iii) loans.

2.

Other Regulatory Reforms Concerning Funds
 

• Special Provisions on Policy-Driven Public Funds
  
  In order to effectively manage private funds of funds ("policy funds") that primarily invest, for policy purposes, in general private funds in which subordinated investors, including the government, participate, policy funds will be allowed to invest up to 100% (increased from the current cap of 50%) of the total number of collective investment securities of general private funds. In the same vein, general private funds will be allowed to invest in the same special purpose company jointly with institutional private funds. Moreover, in cases where a violation of the operating regulations occurs due to unavoidable reasons (e.g., fluctuations in the valuation price, or recovery or distribution of investment assets), the application of the relevant operating regulations will be deferred until the maturity of the policy funds.
   

• Rationalization of Regulations Concerning Public Funds
  
  Current regulations only allow public funds to invest in OECD government bonds in a ratio up to 30% of the total assets of the relevant funds. However, these regulations will be relaxed to increase the current cap to 100% and allow public funds to invest in bonds issued by countries whose credit ratings assessed by the three major international credit rating agencies (i.e., S&P, Moody's, and Fitch) are at least equal to, or higher than, Korea's sovereign credit rating.
   
  For funds that invest more than 50% of their assets in derivatives-linked bonds (i.e., ELBs and DLBs), interest income is linked to stock prices and other factors. However, considering the lower investment risk associated with derivatives-linked bonds that guarantee the principal, and the lower correlation between management capabilities and fund performance, collective investment managers will be exempted from the seeding investment requirements.