63% Redemption Suspension of Popfunding Loan-Backed Private Equity Fund in 'P2P Finance'

[Asia Economy Reporter Kim Min-young] The scale of redemption suspension of private equity funds linked to the peer-to-peer (P2P) lending company ‘Popfunding’ has reached 100 billion KRW. Additionally, 4 out of 10 investors in private equity funds linked to Popfunding were elderly aged 60 or older. Similar to Lime Asset Management and Optimus Asset Management funds, private equity fund sales were concentrated among people in their 50s approaching retirement and the elderly after retirement.

According to data submitted by the Financial Supervisory Service to Min Hyung-bae, a member of the Democratic Party of Korea, as of the end of May, the total amount of private equity funds linked to Popfunding reported by each asset management company was 166.8 billion KRW, of which 105.9 billion KRW (63%) was suspended from redemption. This occurred because investors who invested in loans executed by Popfunding experienced delinquencies and could not recover their funds, leading to redemption suspension.

By asset management company, all 63 billion KRW set by Jarvis Asset Management were suspended from redemption, Hastings Asset Management had 24 billion KRW suspended out of 34 billion KRW, Korea Asset had 14 billion KRW out of 44.9 billion KRW, and JB Asset Management had all 4.9 billion KRW suspended. Optimum Asset Management had 20 billion KRW set, but no redemption suspension has occurred yet.

All these products were sold through securities firms. According to the sales status by securities firms as of the 23rd of last month, IBK Investment & Securities sold 48.5 billion KRW, Korea Investment & Securities 39.6 billion KRW, and Shinhan Financial Investment 39.5 billion KRW in order. Of the total sales amount of 143.7 billion KRW, 56.7 billion KRW was sold to general investors and 86.4 billion KRW to professional investors, with general investors being overwhelmingly individuals (97.6% based on sales amount).

Looking at the sales status by age group of individual customers compiled by the sellers, these products were mainly sold to middle-aged and older adults aged 50 and above. Among 385 individual investor accounts, accounts in their 50s numbered 138 (35.8%), the highest, followed by those in their 60s (23.6%) and 40s (15.5%). Sales to elderly people aged 70 or older accounted for 17.6%. Based on the amount set, for general investors, those in their 50s accounted for 19.43 billion KRW, those in their 60s 14.28 billion KRW, and those in their 70s 9.21 billion KRW. The amount set by general investors aged 60 and above accounted for 40% of the total individual investor amount set.

Assemblyman Min Hyung-bae pointed out, “Elderly general investors may have limited access to information, and it is problematic that many funds with risk ratings of 1 to 2 were sold.” He added, “Since the private equity fund redemption suspension crisis may continue, meticulous supervision by financial authorities is required. In the July National Assembly session, we will review the shortcomings of private equity fund regulations and supervision plans and urge the preparation of countermeasures.”

Popfunding was once recognized by the Financial Services Commission as an innovative case for its movable collateral loans. However, after the Financial Supervisory Service inspected Popfunding in December last year, signs of fund recycling or misappropriation were detected, and a prosecution investigation is currently underway.

P2P finance is a fintech (finance + technology) service that connects borrowers and investors through an online platform without going through financial companies. It was introduced in Korea in 2015 and has grown rapidly. The cumulative loan amount increased more than fivefold from 1.7 trillion KRW at the end of 2017 to 10 trillion KRW as of last month. During the same period, the delinquency rate rose from 5% to 17%. It is about to enter the regulatory system next month.