[Edaily Marketin Reporter YunJi Kim ] Global private equity funds (PEFs) are mounting a formidable offensive in the domestic mergers and acquisitions (M&A) market. As foreign asset management firms, backed by large global funds, are successively acquiring key domestic targets, concerns are mounting that the gap in scale between them and domestic PEFs could widen further, as the latter struggle with the dual burdens of fundraising and regulatory constraints.

In the domestic capital market, calls are growing to draw on the private equity policies of the United States and the United Kingdom to enhance the competitiveness of domestic PEFs. While both countries maintain separate vetting mechanisms for foreign capital acquisitions of key companies, they are also refining their systems to ensure that long-term capital, such as pension funds, flows into their domestic private equity markets. In essence, they are implementing policies that manage foreign capital acquisitions of key companies while simultaneously strengthening their domestic private equity markets so they do not fall behind global asset managers.

The United Kingdom serves as a prime example. Under the National Security and Investment Act (NSI Act), the UK conducts prior reviews of acquisitions of companies meeting certain criteria in 17 sensitive sectors, including defense, energy, artificial intelligence (AI), and advanced materials. If the review determines that there are national security concerns, the government can impose conditions on the transaction or block the acquisition altogether.

At the same time, the UK is pursuing policies to channel pension funds into the private equity market. Last year, 17 major UK pension providers signed the Mansion House Accord—a voluntary agreement among leading UK pension providers to expand private equity investments from pension funds—committing to invest 10% of their defined contribution (DC) pension assets in the private equity market, including unlisted equities, infrastructure, and real estate, by 2030. The goal is for at least 5% of these assets to be invested in the UK’s domestic private market. The plan is to channel pension funds’ long-term capital into the domestic private market to foster both corporate growth and the investment base.

Regulatory burdens on the asset management industry are also being adjusted to better reflect scale and risk. Last month, the UK Treasury unveiled a reform plan for Alternative Investment Fund Managers (AIFMs), deciding to tailor regulations based on a firm’s size and risk level. The aim is to enhance the competitiveness of the asset management industry by adjusting regulatory burdens according to scale and risk, rather than applying a one-size-fits-all approach.

The situation is similar in the United States. Foreign investment in U.S. companies is scrutinized by the Committee on Foreign Investment in the United States (CFIUS) from a national security perspective. Transactions in which foreign entities acquire controlling interests in U.S. companies are subject to broad review, and companies involved in core technologies, critical infrastructure, or sensitive personal data may be subject to review even for certain non-controlling investments. For investments made through funds, CFIUS may, if necessary, examine the investor composition—including foreign limited partners (LPs)—and the fund’s governance structure.

Like the United Kingdom, the U.S. is opening its doors wider to long-term capital flowing into its private markets. Last August, the White House issued an executive order expanding access to alternative investments for participants in 401(k) plans, the U.S.’s leading defined-contribution (DC) retirement plan. The aim is to broaden the channels for the inflow of long-term capital by allowing retirement pension portfolios to include a wider range of private market assets, such as unlisted stocks and private loans.

South Korea also has a system in place to review overseas mergers and acquisitions (M&A) involving companies possessing core national technologies, and M&A transactions above a certain size—regardless of whether they are domestic or international—are subject to merger review by the Fair Trade Commission. However, industry observers note that the difference lies in the emphasis placed on policies to grow their respective domestic private equity markets. While institutional investors in South Korea are also making investments in private equity funds (PEFs), the UK separately sets targets for the proportion of private market investments in defined contribution (DC) pension plans and for domestic investments, and the U.S. is also expanding policy channels for long-term capital inflows, such as broadening access to alternative investments for 401(k) plans. In contrast, South Korea has been placing greater emphasis on strengthening PEF regulations—such as internal controls, reporting obligations, and leverage—following the Homeplus incident. While the U.S. and the U.K. prioritize attracting long-term capital to the private equity market, South Korea has placed regulatory tightening at the forefront, meaning the very center of gravity of their policies differs.

An official in the domestic capital market stated, “The U.S. and the U.K. appear to be managing acquisitions of key companies by foreign capital while simultaneously laying the groundwork for long-term funds to flow into their domestic private equity markets,” adding, “In Korea as well, separate from regulatory tightening, there needs to be a discussion on creating an environment where domestic GPs can raise funds and compete with global asset managers.”