The Universal Truth About Documentation Risk – Our Seoul Roundtable

The fourth stop on my global documentation risk roundtable series brought me to Seoul, and it was one of the most diverse conversations in the series so far. The room included professionals working across real estate, private credit, infrastructure, life insurance allocation, fixed income, and fintech. Different asset classes, different parts of the capital structure, and a very different legal and cultural context to the European and US markets I spend most of my time in.

What struck me most was how consistent the underlying problem is, regardless of geography.

Documentation risk is almost universally delegated to lawyers. But lawyers rarely have a complete enough commercial context to advise proactively, and investors often don’t know which questions to ask. The result is a passive relationship where you only get answers to the questions you already know to ask. The ones you don’t know to ask are the ones that tend to matter.

In Korean deal-making specifically, participants described a cultural norm where legal negotiation is seen as a zero-sum game – if an unacceptable position is proposed, the counterparty might just drop the point rather than push back. Another participant described receiving over a hundred red flags from counsel on a single agreement with no framework for determining which ones actually mattered. That is the gap between credit and legal in practice – and it is exactly the same dynamic I have watched play out in London and New York over the past fifteen years.

The pressure to close quickly makes all of this worse. Fear of missing a deal consistently beats the impulse to push back on terms. This was true for many in the room, regardless of institution type. The practical response I suggested: identify the small number of contractual terms that matter most to your specific investment and be prepared to walk away if those terms are not met. Collateral release, maintenance covenants, affiliate transactions, dividend restrictions. The list will look different for different asset classes, but having a hard line at all is the discipline that has been largely absent from leveraged finance markets for over a decade - but as we saw in Paris, it is returning.

Some private credit deals are now being structured without maintenance covenants, so the first signal that a borrower is in difficulty could be a payment default. There are fewer early warnings. For Korean institutional investors currently scaling up private credit allocations, this is an immediate and concrete risk worth understanding before the exposure grows.

We also discussed something that is often taken for granted in European and North American roundtables: enforcement. A contract is only as good as your ability to enforce it. Participants described situations involving sovereign law changes, counterparties who simply declined to honor contractual obligations, and jurisdictions where litigation is either impractical or counterproductive. Cross-border deals add another layer, including dual-language contracts where the Korean and English versions can carry genuinely different meanings without either party noticing until a dispute arises.

We discussed how LP allocators investing through asset managers may never have the chance to review individual deal documentation themselves – which means that the quality of their due diligence at the manager selection stage is doing a lot of work. Asking the right questions about documentation discipline, maintenance covenants, and governance frameworks is essential.

Private credit in its current iteration hasn’t yet seen a real stress event. When it comes, it will become clear very quickly which managers were genuinely disciplined and which were benefiting from favorable conditions. Seoul reinforced for me that this is a global issue, and that the time to build the governance framework is before you need it.

FLT supports LPs in delivering such frameworks when it comes to allocating to private credit. Our Covenants for LPs course is designed to upskill on legal terms and provides a diligence question list to use when interviewing managers. Click here to find out more.