On May 19, 2020, certain proposed amendments to the Financial Investment Services and Capital Markets Act (the “FSCMA”) were announced (the “Amendments”) which relaxed certain restrictions for publicly offered funds.   

Below are some of the notable changes under the Amendments having relevance to publicly offered real estate and infrastructure funds: 

1.   Borrowing and lending by publicly offered funds

Currently, other than in certain limited cases, borrowing by publicly offered funds is limited to only in connection with the purchase of real estate assets, in principle.  Under the Amendments, the purpose of borrowing was expanded to additionally allow borrowing for purposes of acquiring infrastructure assets to be designated under the Presidential Decree, including infrastructure assets, by publicly offered real estate funds or infrastructure funds. 

Currently, other than in certain limited cases, publicly offered funds can lend money only to legal entities engaged in the real estate development business (including real estate trust companies, REITs or other collective investment vehicles), in principle.  Under the Amendments, the scope was expanded to include legal entities engaged in business relating to acquisition, leasing or management of real estate and infrastructure asset to be more specifically designated under the Presidential Decree. 

2.   Waterfall profit distribution permitted for publicly offered funds

Currently, waterfall profit distribution is prohibited for publicly offered funds unlike private equity funds.  Under the Amendments, exceptions to this general prohibition were proposed, which are (i) when a publicly offered fund invests into real estate or infrastructure assets in excess of certain percentage of the fund assets to be designated under the Presidential Decree (of which percentage shall be more than 40% of the fund asset value), (ii) when a publicly offered fund is designated to allocate risk of loss firstly to the fund’s asset manager, trustee and sales company, or (iii) otherwise permitted under the Presidential Decree. 

3.   Publication interval of basis price for publicly offered real estate funds relaxed

Currently, publicly offered real estate funds must publish their basis price (NAV per unit) on a daily basis with an exception to publish within 15 days when difficult to daily publish the basis prices as determined under the Presidential Decree.  Under the Amendments, the publication interval may be relaxed to within six months where daily publication of basis price is not necessary as determined under the Presidential Decree.  

The public comment period on the proposed Amendments is through June 8, 2020.