[Edaily Marketin Won Jae-yeon Reporter] The Business Development Company (BDC) market has stalled after the launch of its first product following the implementation of the new system. Although the market was introduced with the aim of channeling retail funds into venture and innovative companies, only one product—targeted primarily at institutional and professional investors—has been launched to date. As the tax incentives initially proposed as incentives for investors failed to pass the National Assembly, asset management firms are now taking a wait-and-see approach regarding the timing of subsequent product launches.

According to the financial investment industry on the 2nd, while asset management firms have been reviewing products since the BDC system took effect last March, only Shinhan Asset Management has actually launched a product so far. Previously, financial authorities stated that, upon the system’s implementation, the 42 existing comprehensive asset management firms would be deemed to have received authorization to operate BDCs, and that they would proceed with product launches and listings by each firm following adjustments to the stock exchange system.

However, the only product launched since March is Shinhan Asset Management’s “Shinhan Innovative Enterprise Growth Investment Trust No. 1.” Although Shinhan Asset Management launched Korea’s first BDC in April, it was structured primarily for institutions and professional investors, rather than as a publicly offered BDC targeting general retail investors.

While a BDC established through a general public offering must be listed on the KOSDAQ market within 90 days, the listing deadline is extended to a maximum of three years if it is established solely with funds from professional investors. Rather than immediately pursuing a public offering and listing for retail investors—given that tax benefits and a retail sales infrastructure are not yet fully in place—the firm has opted to first build its portfolio by targeting institutions and professional investors.

Initially, it was reported that, in addition to Shinhan Asset Management, major asset management firms such as Mirae Asset Management, KB Asset Management, Hanwha Asset Management, NH Amundi Asset Management, and Korea Investment Trust Management were considering launching BDC products or preparing initial applications. However, as regulatory revisions have been delayed, these later-entering firms appear to have shifted their focus toward gauging retail investor demand and assessing whether regulatory improvements will be implemented.

A BDC is a publicly offered, listed fund designed to allow individual investors to indirectly invest in unlisted venture and innovative companies. Under this structure, an asset management firm raises funds through a public offering to invest in unlisted stocks and venture companies, while investors have the opportunity for interim redemptions through the listed fund. While traditional venture investment has been centered on institutions and high-net-worth individuals, BDCs have attracted attention since their introduction for opening up a channel for general investors to invest in growing companies.

The issue lies in the product’s risk profile. Compared to general publicly offered funds focused on listed stocks or bonds, pricing and exit timing are more uncertain, and the potential for loss increases depending on the growth prospects of the investee companies. In particular, general publicly offered BDCs must shoulder the burden of listing after establishment, valuing unlisted assets, managing liquidity, and fulfilling their duty to inform investors. Without tax incentives, it is difficult for asset management firms to launch retail products on their own.

In response, the government proposed a 9% separate taxation rate on dividend income as an incentive. Typically, dividend income is subject to a 14% withholding tax, or 15.4% when local income tax is included. In contrast, under the 9% separate taxation rate, income within a certain limit is taxed at a lower rate without being combined with other financial income. The intent was to attract private capital by offering tax benefits in exchange for assuming the risks associated with investing in unlisted innovative companies.

Earlier, during the extraordinary session of the National Assembly in February, the government proposed a plan to grant BDC investors the benefit of separate taxation on dividend income, capped at 200 million won in contributions. However, while the tax benefits for the “Public Participation National Growth Fund”—which was promoted at the same time—passed the National Assembly, the BDC tax benefits were not ultimately included, resulting in the launch of the product without any significant incentives.

The comparison with the Citizen-Participation National Growth Fund is also a concern. The National Growth Fund, promoted during the same period, offered income tax deductions, separate taxation, and a loss-absorption structure backed by the government’s subordinated investment. In contrast, while BDCs share a similar policy objective of investing in unlisted growth companies, the National Growth Fund offers greater incentives from an investor’s perspective.

Consequently, asset managers are turning their attention to the tax reform plan expected to be announced in late July. As the government has signaled the direction of real estate tax reform, the securities industry views tax measures related to capital market value enhancement—such as separate taxation of dividend income and the revaluation of undervalued companies—as key focal points of this reform package. If a provision for separate taxation of BDC dividend income is re-included, discussions on launching follow-up products could resume, but whether it will actually be reflected remains to be seen.

An asset management industry official stated, “Initially, there was talk that follow-up BDC products might be released around June, but with the tax benefits removed, asset managers are taking a wait-and-see approach.” The official added, “Since it’s uncertain how many retail investors will participate without incentives, many firms are waiting to see if BDC support measures are included in the tax reform plan before taking action.”