Private Equity Fund and Economic Growth

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The Financial Services Commission has decided to loosen regulations imposed on the expanding private equity fund. Its primary aim is to promote active merging and acquisition of businesses in various markets. By implementing such policy, the government is hoping to bring more economic growth, active investments and circulation of liquidity in the market.

Private Equity Fund(PEF) refers to the investment of funds or equity into various private companies. It can be done in terms of limited partnership, where two or more firms come together with a certain contract and come to an agreement. Each firm is only liable for a limited amount of money that the partners have invested. PEF is used for funding technologies, growth of capital, or even for the acquisition of other companies.

For instance, if there is a company on the verge of bankruptcy, a number of investors will gather together to buy that company and rebuild it with new group of human capitals. Each firm willing to invest will put in a certain amount of equity into that company to let it stand again.

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Several changes have been made for the PEF policy. Before, PEFs could only buy stocks, but now businesses or sectors of the business can directly be bought and sold. The policy has loosened the many restrictions to allow for a free flow of money in the economy.

There are several benefits for loosening the policy. The foreigners now have an easier access to the economy. They can make easier buyouts, which might trigger more investments from overseas. This may help to further develop the economy and the business in general. Since foreign investments bring a large amount of money at once, this may also serve useful for the economy.

There are, however, disadvantages that may also arise. The policy not only loosened the investment restrictions, but it also makes it harder to gain more profit, especially for foreign investors. In this sense, there is an uncertainty of whether the foreign investors will be more interested in Korea after the change of the PEF policy. Moreover, since Korea is inexperienced in dealing with the large buyouts from overseas investors, this may also create some confusion for the foreign investors as well as domestic ones.

The policy change in the PEF shows that Korea is striving to take a step forward in the world’s market and economy. The merits and the disadvantages have to be weighed carefully in before further implementing such policy.

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