by Staff Writer on April 9, 2012
South Korea’s nascent hedge fund industry is struggling to attract investors due to heavy regulation and managers’ short track records.
The government allowed the creation of domestic hedge funds late last year in a move to set off a big bang in the financial sector. So far, a total of 17 hedge funds have been set up by 11 local asset managers but they have attracted only about Won500bn ($442,000m) in total, despite their pledge to return about 10 per cent a year. Local institutional investors such as pension funds are still reluctant to put their money into such home-grown hedge funds while retail investors have limited access to the new investment vehicles.
In a bid to protect investors, the government allowed only big financial institutions to establish hedge funds in Korea, and set a high entry level for retail investors, allowing access only for those who can put up at least Won500m.
Asset managers that want to set up hedge funds must have at least Won10tn of assets under management, while brokerages must have more than Won1tn of their own capital, and investment advisers must have at least Won500bn of funds entrusted by investors. Hedge funds must have their own equity capital of at least Won6bn.
“Institutional investors are taking a wait-and-see attitude before they see some concrete returns while the investment ceiling is too high for individual investors,” says Chang Duk-soo, senior managing director at Hyundai Investments.