Financial Services Commission Improves Regulations on Multi-layered Fund of Funds... Expectation for Revitalization of Real Estate and REITs ETFs

As Part of the 'Measures to Revitalize Public Offering Funds'
Legislative Notice of Amendment and Notice of Change in Financial Investment Business Regulations

Yonhap News

The financial authorities are pushing for a legal amendment to allow exchange-traded funds (ETFs) to invest in listed fund-of-funds REITs and real estate/REIT ETFs as part of measures to revitalize public offering funds. This aims to diversify investment product options by improving the so-called 'multi-layered fund-of-funds regulation.'

On the 19th, the Financial Services Commission announced the legislative notice and regulatory change notice for the amendment of the Enforcement Decree of the Capital Markets and Financial Investment Business Act and the Financial Investment Business Regulations reflecting this content. This amendment is part of the 'Public Offering Fund Competitiveness Enhancement Plan' announced on January 3.

First, to expand investors' choices who want to invest in real assets such as real estate, ETFs will be allowed to invest in listed fund-of-funds REITs and real estate/REIT ETFs. REITs are real estate trust companies that raise funds from multiple investors to invest in and operate real estate, distributing the generated income to investors as dividends. However, to prevent excessive fee collection, if the ETF and the asset management entity of the investment target are the same, it is prohibited to collect the same nominal management fee twice from investors. Additionally, it is stipulated that the management fee structure should be more favorable to investors compared to general trading conditions.

Second, to enhance the transparency of alternative investment fund assets such as real estate and infrastructure and to boost investor confidence, periodic evaluations and evaluations by external professional institutions are mandated. To improve transparency and investor trust in alternative investment fund assets, assets evaluated at fair value must be assessed by the Collective Investment Asset Evaluation Committee at least once a year. Furthermore, when evaluating assets invested in by real estate and infrastructure funds, it is mandatory to prioritize prices provided by external professional institutions within the past year.

The amendment and the Financial Investment Business Regulations amendment will undergo legislative notice and regulatory change notice from the 20th of this month until the 30th of next month. Subsequently, after review by the Regulatory Reform Committee, the Ministry of Government Legislation, the Vice Ministerial Meeting, and the Cabinet Meeting, it is scheduled to be promulgated in the first half of next year.