Regulations on Hedge Fund
The South Korean financial authorities relaxed regulations in relation to the establishment of hedge fund operators in October last year. Since then, a number of operators and hedge fund products have hit the domestic market one after another. Industry experts are saying that there are still more regulations to be relaxed though.
One of the examples is that a hedge fund has to be raised by 49 persons or less, which was maintained while the minimum fund amount required was lowered from 500 million won to 100 million won last year. This means new hedge funds can be small ones in some cases although their popularity is increasing rapidly to the point of attracting more than 700 billion won in the first quarter of this year alone. Under the circumstances, some hedge fund management firms, including younger ones that are more prone to the possibility due to the lack of previous operation records and thus less likely to attract funds from major players like institutional investors, are setting their own minimum requirements at 500 million won, one billion won or the like.
Another obstacle is the expansion of short selling announcements that is scheduled to become effective next month. According to the revised Capital Markets Act, a public announcement has to be made whenever 0.5% or more of the total listed shares of a company is sold short, which is somewhat burdensome on the part of hedge funds utilizing both long and short positions. “Enterprises and shareholders are likely to feel uncomfortable with such announcements on which shares are subject to short selling and then short selling itself will be shrunk,” a hedge fund operator explained.
The introduction of funds of hedge funds, which is to enhance small investors’ access to the market, is still up in the air. This was pursued last year during the revision of the Capital Markets Act but rejected as some lawmakers claimed that funds of hedge funds could lead to significant losses on small investors’ part. The Financial Services Commission is planning to retry in the 20th National Assembly after responding to the claim by coming up with some safeguards, examples of which include a portfolio of at least three publicly offered funds investing in a private equity fund with the ratio of each limited to 50% or less.