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South Korean Hedge Fund Market Going Through Growing Pains
Several Young Hedge Funds on Verge of Shutdown
South Korean Hedge Fund Market Going Through Growing Pains
  • By Yoon Young-sil
  • April 25, 2019, 09:11
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A number of hedge funds established in recent years are on the verge of shutdown due to capital impairment.

A number of second-generation hedge funds in South Korea are on the verge of shutdown due to capital impairment. Some of them are trying to deal with the situation by a change in personnel.

Bros Asset Management released a public notice on April 23 and said that its largest shareholder Yoo Jae-sang with a shareholding of 82.7 percent and its CEOs Kwon Hyuk-chan and Jo Yong-suk signed a full stock transfer contract with How Investment. Bros Asset Management entered the hedge fund market three years ago.

Owl Asset Management, in the meantime, held a shareholder meeting late last month to appoint a new CEO. The asset management firm, which was established in late 2016, said that former CEO Yoon Hyun-sup handed over his job to Jung Da-hoon for contract expiration.

The two firms failed to meet their minimum equity capital requirement, 700 million won, as of the end of last year. Owl Asset Management posted a capital impairment ratio of 133 percent last month before a capital increase of over one billion won in late March and this month. Bros Asset Management’s current capital impairment ratio is 78 percent.

Experts are expressing concerns. “The South Korean stock market tumbled last year and the repercussions are emerging,” said Korea Capital Market Institute analyst Hwang Se-woon, adding, “More asset management firms are likely to be driven out of business over time.”

The Financial Supervisory Service said that the situation for a more mature market is likely to continue for a while and it is closely monitoring the situation for investor protection. “We relaxed hedge fund establishment requirements last year, while replacing yearly inspection with monthly inspection, so that those failing to meet the requirements can have a chance of capital replenishment for six months,” it explained, adding, “We are currently persuading such firms to return their licenses in that they cannot reenter the market for five years after an administrative cancellation of registration whereas the period is as short as one year in the case of a voluntary license return.”