Hedge Fund Market Growing Rapidly in Korea

Hedge funds, which were once considered an investment vehicle only for well-heeled investors, have become a popular investment tool among ordinary Korean investors 10 years after the introduction. In particular, hedge funds, which are relatively insensitive to stock prices, have been gaining popularity after “Black October” last year. Asset management companies also tend to form hedge fund teams and strengthen their competence in the sector.

Investment banking (IB) industry sources said on Feb. 6 that the domestic hedge fund market is growing at a rapid pace. The market was worth 24 trillion won (US$21.45 billion) last year, which were twice as much as 12.37 trillion won (US$11.05 billion) in 2017. It has been doubled every year after 2015 when a product which allowed investors to indirectly invest in hedge funds with just 5 million won (US$4,468) was first released. The hedge fund market expanded from a mere 3 trillion won (US$2.68 billion) at the end of 2015 to 6 trillion won (US$5.36 billion) in 2016 and 12 trillion won (US$10.72 billion) last year.
 

The number of hedge fund management companies also increased to 159 in 2018, up 51 from a year earlier. Private fund managers, such as Seed Wealth Management Inc., Core Asset Management Co. and Moru Asset Management Co., jumped into the market last year. A senior official from the asset management industry said, “Since the second half of last year, the public offering fund market has been contracting amid a bearish stock market. However, Korean-style hedge funds are continuously growing. Not only new asset management companies but also value investing asset management firms pursuing safety are entering the hedge fund market.” In short, asset managers will compete in the hedge fund market from now on.

However, hedge funds are not all powerful. Some experts pointed out that hedge funds also failed to generate profits when the benchmark KOSPI index plunged by more than 14 percent in October last year. The year-end earnings rate of 1,836 hedge funds stood at minus 0.5 percent last year. The figure was low compared to 7 percent in 2017. However, hedge funds’ rate of return is still less sensitive to the stock market in light of the earnings rate of domestic equity-type funds at minus 18 percent.