The Financial Supervisory Service (FSS) of South Korea has taken urgent measures to assess the risk to domestic securities firms due to the instability in the US private lending market. This action comes after Blue Owl Capital, an American private equity firm, announced it would halt redemptions from its private lending funds, triggering fears about potential defaults that could spill over into the South Korean financial markets. The FSS gathered high-ranking officials from ten major domestic securities companies to discuss the situation and its implications for local investors.

Private lending, distinct from bank loans, involves private equity funds directly lending money to companies, a market that has grown significantly since the 2008 global financial crisis due to increased regulations on bank lending. However, the rapid expansion of private lending, especially in the US, has sparked concerns about systemic risks. The recent decision by Blue Owl to stop redemptions is seen as a sign that these risks are materializing, impacting the liquidity of domestic firms and potentially causing consumer harm in South Korea as well.

According to data from the FSS, investments in overseas private lending funds by South Korean investors are rising sharply, with outstanding investments expected to grow from 11.8 trillion won at the end of 2023 to 17 trillion won by 2025. Notably, private lending fund subscriptions from individual investors are projected to increase significantly during this period. If these funds face defaults, it could transmit risks to the domestic financial market, necessitating proactive oversight to safeguard consumer interests and market stability.