Amid concerns over insolvency of private equity loans from the U.S., the balance of investment in ov..

Amid concerns over insolvency of private equity loans from the U.S., the balance of investment in overseas private equity loans by the domestic financial sector and major pension funds and mutual aid associations reached nearly 56 trillion won, a report showed. However, the government evaluated that the related risks are manageable as the proportion of investment to total assets is low and the proportion of open investment that can be requested to buy back is limited.

According to related ministries such as the Financial Services Commission, the Ministry of Finance and Economy, and the Financial Supervisory Service on the 26th, the total investment was 55.9 trillion won as of the end of February this year. Investment in the financial sector was 30.5 trillion won, and major pension funds and mutual aid associations were 25.4 trillion won.

The total overseas private equity loan investment balance increased by 15.2 trillion won (+37.2%) from 40.7 trillion won at the end of 2023 to 55.9 trillion won at the end of February this year. During the same period, the financial sector increased 25.2 percent from 24.4 trillion won to 30.5 trillion won, and pension funds increased 55.3 percent from 16.3 trillion won to 25.4 trillion won.

However, in the case of the financial sector, it decreased slightly from 30.8 trillion won at the end of last year to 30.5 trillion won at the end of February this year. It is attributed to the slowdown in new investment or partial recovery due to growing concerns over the U.S. private equity loan market since the fourth quarter of last year.

Within the financial sector, the proportion of investment in the insurance sector was overwhelmingly large. As of the end of February this year, the insurance sector’s investment in overseas private equity loans amounted to 20.6 trillion won, accounting for 67.4% of the total financial sector. The Korea Federation of Mutual Finance was followed by 4.7 trillion won (15.2 percent), 2.8 trillion won (9.3 percent) for securities companies and 2 trillion won (6.5 percent) for banks.

In terms of the proportion of investment to total assets, the financial sector as a whole was only 0.42%. By region, insurance rights were relatively high at 1.53% and mutual finance central association at 1.44%, while securities were low at 0.30% and banks at 0.05%. The proportion of overseas private equity loan investment to total managed assets such as pension funds was 1.2%.

Investment areas were concentrated in the United States and Europe. The financial sector’s investment in overseas private equity loans was 58.4% in the U.S., 30.7% in Europe, and 10.9% in other regions. Pension funds and others showed similar structures at 63 percent in the United States, 32 percent in Europe, and 5 percent in other regions.

The proportion of investment in the IT industry among overseas private equity loans in the domestic financial sector was 14.8%. The proportion of investment in the IT sector, such as pension funds, was 21.8%, higher than in the financial sector, but relatively low compared to the 41% share of the IT sector in global private equity loan transactions.

Analysts say that liquidity risks from a surge in redemption are also limited. The proportion of open structures that investors can request repurchase was 9.8% of the total investment in the financial sector. The proportion of open investments such as pension funds was 4.7%, which was lower than that of the financial sector.

The financial authorities said, “The liquidity risk is not large due to the limited number of financial companies that participated in overseas private equity loan investments, the proportion of total assets is small, and the proportion of open investments is small,” adding, “The risk is sufficiently manageable because the concentration of the IT industry is good.”

“The pension fund is also not high in proportion to operating assets, and the proportion of investment regions and car owners is similar to that of the financial sector,” he added. “We will monitor the current status of investment from time to time in consideration of market conditions and cooperate among related ministries.”