European Fund Troubles Resound in Korea as $303 Million Fund Frozen

Kyungji Cho

09 Sep 2020, 04:07 AM IST

(Bloomberg) -- A European freeze on redemptions of H2O Asset Management’s biggest funds is reverberating in South Korea.

Kiwoom Asset Management and VI Asset Management Korea Co. have suspended withdrawals due to their exposure to H2O, which is part-owned by Natixis SA. French officials last month barred trading in three H2O funds holding illiquid private securities linked to German financier Lars Windhorst.

Read More: Frozen H2O Fund Has Up to 35% of Assets in Illiquid Securities

The fallout underscores the broad impact of the London-based asset manager’s troubles. It also highlights how declining interest rates have pushed buyers from Korea to pile tens of billions of dollars into unconventional assets abroad in the hunt for yield.

A spokesman for H2O declined to comment.

Kiwoom’s frozen fund has about 360 billion won ($303 million) in assets, a company official said by phone. The Kiwoom fund had more than 20% of its assets in the two H2O money pools and its Multibonds fund was its largest holding, according to a filing at the end of March.

VI Asset Management has also stopped redemptions from a fund with exposure to H2O Multibonds, the Seoul-based firm said in a statement Tuesday. The VI Asset fund has more than 100 billion won in assets, according to a company official.

France’s Autorite des Marches Financiers told H2O last month to suspend trading in three funds holding private securities that the firm was in the process of selling back to Windhorst. The private bonds were at the center of a liquidity scare that sent more than 8 billion euros ($9.5 billion) of client cash fleeing H2O funds in 2019.

H2O’s Multibonds fund, managed by the firm’s founder Bruno Crastes, had as much as 35% of its assets in illiquid securities, according to an investor letter sent to clients last week. The thinly traded debt will be split from the funds’ liquid securities through a process known as sidepocketing.

Gen2 Partners Ltd., a Hong Kong-based hedge fund, in July halted withdrawals from some of its funds by Korean investors. Korea’s financial regulator has said it’s planning to probe all of the country’s homegrown asset management companies handling private funds.