Large Korean Hedge Fund Halts Investor Withdrawals Amid Probe
Large Korean Hedge Fund Halts Investor Withdrawals Amid Probe
(Bloomberg) -- One of South Korea’s largest hedge funds suspended withdrawals from some funds, saying the firm has been unable to liquidate assets fast enough to meet demands from investors for their money back.
Lime Asset Management Co., which runs $4 billion of assets, froze funds worth 620 billion won ($520 million), Won Jong-Jun, chief executive officer at the Seoul-based firm, said by phone. The suspensions affect funds that invest in assets that lack liquidity, not those buying publicly-listed stocks or bonds, Won said.
“We made this decision through consultations with regulators in order to minimize the losses of investors,” Won said. “Due to several issues surrounding the firm recently, some investors wanted withdrawals from our funds and we couldn’t liquidate them as fast as they want.”
The rise in redemption requests came after local media reported on a Korean regulatory probe into the company’s investments in convertible bonds. A call to the Financial Supervisory Service went unanswered. Won declined to comment on the allegations, saying that the investigation is ongoing.
Sales of convertibles, which pay low coupons and let investors swap the securities for stock, have surged in Korea amid demand from homegrown hedge funds. Investments in convertibles -- often sold by small- and medium-sized firms without credit ratings -- were also encouraged by the Korean government, which wanted to nurture the country’s young companies amid a flagging economy.
South Korea’s small-cap Kosdaq market is down 6% this year, making it less likely that hedge funds can book a profit from converting bonds into underlying shares.
“Korea’s convertible bond market is still vulnerable -- technically when investors rush for withdrawals, fund managers should sell the bonds to return cash to investors,” said Kim Pil-kyu, senior research fellow at Korea Capital Markets Institute. “But that is not that easy in the private market, which lacks liquidity.”
To contact the reporter on this story: Heejin Kim in Seoul at hkim579@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Kurt Schussler
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