The Business Development Company (BDC) system was officially launched on March 17, but the market remains largely inactive. Designed to provide retail investors with opportunities to invest in unlisted venture and innovative companies, the initiative has seen only one product introduced since its inception due to the absence of tax benefits. Industry experts believe that the BDC market will only begin to take shape once tax reform is determined in the second half of this year.
According to the financial investment industry, the BDC system, established under amendments to the Capital Markets Act, has only seen the launch of the 'Shinhan Innovative Company Growth Investment Trust No. 1' by Shinhan Asset Management on April 22. This product is primarily targeted at institutional and professional investors, rather than general retail investors.
BDC allows retail investors to invest in unlisted venture and innovative companies through a public fund structure. However, a key issue is the lack of tax support that was expected to accompany the BDC's introduction. The industry had anticipated that tax benefits similar to those for venture investment associations or new technology business investment associations would be implemented. Unfortunately, proposed amendments to the relevant tax exemption laws have not passed in the National Assembly, leaving BDCs subject to the same tax regime as general public funds.
As a result, asset management firms are not rushing to launch new products. One asset management official stated, "We are considering product launches, but the speed and scope of tax reform are crucial. We are monitoring discussions as the government and the Financial Investment Association work on tax support measures."
Industry consensus indicates that without tax support, the BDC will struggle to gain traction. Investments in unlisted companies tend to be long-term and carry relatively high risks, making tax incentives essential to attract retail investors. A financial investment industry representative noted, "It is rare for products investing in unlisted venture companies to lack any tax benefits. Even if it is not at the level of venture investment associations, some degree of tax support is necessary to create investment incentives."
The recent focus on the National Growth Fund also poses a challenge for BDCs. The National Growth Fund is a government-backed policy fund that is discussing tax benefits such as income deductions and separate taxation. Investors are likely to gravitate towards products that offer tax benefits while also investing in innovative company growth.
However, a financial investment industry representative remarked, "While the National Growth Fund is drawing market attention, which may overshadow BDCs, the National Growth Fund is temporary, whereas BDCs are designed to operate continuously like new technology business investment associations. Therefore, BDCs could eventually establish a separate market in the long run." Financial authorities also acknowledge the need for tax support.
The industry views the direction of tax law amendments in the second half of this year as a critical turning point for the BDC market. If tax reforms are implemented, subsequent fund launches and capital raising could accelerate. Conversely, without such reforms, there are concerns that the newly introduced system could lose momentum right from the start.
* This article has been translated by AI.
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