[Edaily Marketin Song Seung-Hyeon Reporter] There are concerns that domestic private equity funds (PEFs) could be designated as large conglomerates if they invest in real assets such as artificial intelligence data centers (AIDCs). This comes on the heels of strengthened management regulations following the ENPLUS incident and discussions on restrictions on entry into key industries sparked by the management control dispute at KoreaZinc, revealing new constraints on investments in real assets. While most of these regulations apply only to asset management firms registered as general partners (GPs) in Korea, large-scale transactions are increasingly shifting toward overseas private equity funds.

According to the investment banking (IB) industry on the 10th, Article 38, Paragraph 1, Items 5 and 6 of the Enforcement Decree of the Fair Trade Act exclude “PEF-only groups”—composed solely of institutional-only PEFs, special-purpose investment vehicles, investee companies, and GPs—from designation as large business groups. This exemption reflects the characteristic of PEFs that their control over investee companies is temporary. However, real estate investment trusts (REITs), real estate collective investment vehicles, and project finance investment companies (PFVs)—which are primarily used to hold physical assets such as data centers—are not specifically included in this list. This means that if a domestic PEF utilizes these vehicles, it may fail to meet the requirements for a “specialized PEF group” and could therefore be subject to designation.

SKTelecom(017670)SK Horizon, a subsidiary of AIDC whose establishment was announced last August, will have its shares divided as follows once the transaction is finalized: SKTelecom 51%, KKR 29%, and a consortium of IMM Investment and StoneBridge Capital 20%. Although the domestic consortium also committed to investing 1.3 trillion won, KKR secured the position of the largest financial investor. Naver has signed an AI infrastructure financing agreement with Brookfield worth up to $9 billion (approximately 12 trillion won). Although the importance of data centers is growing as we enter the AI era, large-scale external funding is primarily being provided by foreign capital.

Industry insiders cite concerns over being designated as a “group subject to cross-shareholding restrictions” as one reason domestic private equity funds (PEFs) are hesitant to actively invest in real assets. If a group’s assets exceed 12 trillion won and it is designated as such, the burden becomes even greater. Under the Capital Markets Act, a PEF belonging to a group subject to cross-shareholding restrictions must sell its stake within five years if the acquired company is incorporated as an affiliate. Since infrastructure such as data centers is often held for more than 10 years, the requirement to sell within five years makes the investment itself difficult.

Even when looking at the buyout market as a whole, the concentration on foreign PEFs is evident. In domestic corporate buyouts worth 500 billion won or more acquired by PEFs through the third quarter of this year, the share of domestic PEFs (based on transaction value) stood at just 21.9 percent. This share, which had exceeded 70% through 2024, fell to 28.1% last year and has since remained in the low 20s. In the third quarter alone, KKR (SK Horizon), TPG (LOTTE rental), and Bain Capital (Gongcha) added major deals. Carlyle’s acquisition of Cheongho Nice and TA Associates’ selection as the preferred bidder for SG Bio are part of the same trend. MBK Partners, despite raising its sixth buyout fund worth 8 trillion won, continues to pursue acquisitions in Japan rather than large-scale domestic deals.

Industry insiders cite sweeping regulations targeting private equity funds as the reason behind this shift. Regulations targeting private equity funds (PEFs) gained momentum following Homeplus’s filing for corporate rehabilitation in March of last year. Fourteen amendments to the Capital Markets Act—including proposals to lower the fund borrowing limit from 400% to 200% of net assets and to strengthen general partner (GP) registration requirements—are currently pending before the National Assembly’s Political Affairs Committee.

The Financial Services Commission also unveiled institutional reform measures last December, including a “one-strike-out” rule that revokes GP registration for a single serious violation of laws and regulations. Following the management control dispute at KoreaZinc, the discussion has shifted toward blocking PEFs from entering the market altogether. When Rep. Kang Jun-hyun of the Democratic Party of Korea pointed out at a Financial Services Committee meeting last July that mechanisms were needed to restrict the acquisition of management control in national key industries, Financial Services Commission Chairman Lee Eun-won responded that he agreed with the intent.

Kim Sang-hoon, a lawmaker from the People Power Party, proposed an amendment to the Industrial Technology Protection Act that would require domestic companies under the dominant influence of foreign capital to obtain approval from the Minister of Trade, Industry and Energy when acquiring firms possessing core national technologies. Overseas private equity funds—such as KKR, TPG, and Blackstone—that participate in transactions without being registered as domestic GPs are exempt from management regulations under the Capital Markets Act.

With discussions on operational regulations and market entry restrictions compounded by constraints on real-asset investments, some observers interpret that the scope for domestic asset managers to operate is narrowing. Domestic private equity funds (PEFs), which have already scaled back operations due to a weak won, high interest rates, and shrinking capital inflows, now face the added burden of navigating sector-specific regulations.

An industry insider lamented, “With buyouts, we have to navigate borrowing and reporting regulations; in key industries, there are entry restrictions; and for real-asset investments like data centers, we even have to worry about being designated as part of a large conglomerate.” The insider added, “Since the regulations vary by sector, the larger the deal, the sooner we have to pause at the review stage. Overseas PEFs can enter the market for the same assets without these concerns, making it difficult to compete.”