Repo funds are taking a direct hit from the spread of COVID-19. Most of those funds, which have led the growth of the hedge fund market in South Korea, are about to post losses. The current size of the market is approximately 32 trillion won and repo funds constitute more than one-fourth of the market.
The total size of hedge funds related to the prime brokerage services of local securities companies was 32,635.7 billion won on March 20 whereas it reached 34,489.9 billion won at the end of January this year.
In addition, the net asset of the funds fell below their total investment last month, which means the funds posted losses last month. Specifically, the net asset fell from 34,534.2 billion won to 30,995 billion won during the period.
The local hedge fund market began to shrink last year after Lime Asset Management’s fund redemption failure. Although the market showed some positive performance early this year despite the pandemic, concerns over the stagnation of the short-term money market are mounting and more and more money is flowing out of repo funds at this moment.