Will Korea Adopt the Global Standard of 'One Fund, One Management Company'? VC Industry Sees It Positively

Linked to the Ministry of SMEs and Startups' "Comprehensive Plan for Korea to Leap into the Ranks of the World's Top Four Venture Powerhouses"
"Could Be a Positive Signal for the Inflow of Foreign Capital into Korea"

A bill has been introduced that would require venture investment companies to establish a dedicated fund management company for each fund, in line with global standards. The venture capital (VC) industry says that, if the bill passes, it could serve as a positive signal to foreign investors.

According to the National Assembly on the 13th, Representative Kim Han-kyu of the Democratic Party and 13 other lawmakers recently sponsored a partial amendment to the Act on Special Measures for the Promotion of Venture Businesses. The core of the bill is to require VCs to establish an investment partnership management company when forming a venture investment partnership (fund).

This bill is also linked to the Comprehensive Plan for Leaping into the Top Four Global Venture Powerhouses, which was announced late last year by the Ministry of SMEs and Startups. The ministry had stated that it would lay the institutional groundwork by introducing investment partnership management companies in order to clarify the contribution of VC executives and employees to management performance and to resolve conflicts of interest between VCs and investment partnerships. An official from the ministry said, "The ministry and the lawmaker's office communicated closely, which led to the introduction of the bill."

The bill focuses on aligning with the fund management systems of major overseas markets. Overseas, it is common practice to establish a dedicated management company for each fund. For example, in the United States, when a venture capital firm participates as a fund management company (general partner, GP), it sets up a separate legal entity dedicated to fund management. Because the domestic management structure differs from those abroad, foreign investors must separately review how Korean partnerships are managed, which tends to lengthen the due diligence and commitment review period. Another reason for the bill is that, under the current structure, it is difficult to clearly link the performance of management personnel to the actual performance of individual funds.

Taking industry realities into account, the establishment of a dedicated management company would not be mandatory. A staff member in Representative Kim Han-kyu's office said, "The bill allows companies to establish such entities on a voluntary basis."

The VC industry is expecting positive effects. An executive at a VC firm said, "Korean VCs are trying to attract overseas limited partners (LPs), and if the bill passes, foreign capital could flow into Korea more smoothly," adding, "If the bill is supported at the policy level, it could also serve as a signal that Korea is an attractive investment destination."

There are also some concerns. A person from the VC industry commented, "It is as if an intermediate company is being created purely for administrative convenience." However, this person added, "If it is not mandatory, there will not be strong opposition from the industry."