December 21, 2024

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There are growing investor concerns as South Korea’s largest hedge fund Lime Asset Management has declared to cease to have its funds redeemed over the past few weeks in order to address liquidity.

Some 620 billion won ($518.5 million) in over 150 investment funds will be frozen even when they mature, starting Oct. 10, according to Lime Asset.

These funds are tied to Lime Asset’s two fund-of-funds worth a combined 1.2 trillion won, each devoted to private bonds and mezzanine instruments like convertible bonds and bond warrants issued by firms listed on Korea’s Kosdaq stock market. 

The announcement is expected to affect some 3,000 retail investors into the funds through sales channels of 30 financial institutions including Woori Bank. A week prior, Lime Asset had decided to defer redemption of funds worth 27.4 billion won which allocates assets to repurchase agreement funds and private debts, affecting some 200 investors.

Lime Asset, with 5.5 trillion won in assets under management as of August, vowed to return the principal and yield to investors “as soon as possible,” without elaborating on a detailed schedule to allow money withdrawal.

“We apologize for announcing the delay in fund redemption as scheduled,” Lime Asset said in a statement.

“We thought it would be better to halt investor money outflow for the time being in order to secure returns from the assets we invested in, instead of selling off assets at an excessively low price to address the recent pace of fund redemption.”

The fund portfolio’s performance was weakened as private debts’ lack of marketability leads to its low liquidity, while Kosdaq-listed firms’ stock price has overall been drifting lower on market uncertainties. The benchmark Kosdaq index in August saw a biggest intraday slide in 12 years, while hitting the lowest in five years.

The row came as investors in Lime Asset funds began to withdraw money since July this year, as the firm was under scrutiny for possible mishaps in total return swap transactions and risky investment in mezzanine products. Financial authorities and prosecutors have been looking into the cases.

Financial Services Commission Chairman Eun Sung-soo told a press conference on Oct. 10 it would keep close tabs on Lime Asset's decision, and vowed to take action to prevent market uncertainties triggered by the fund freeze.

Founded in 2012, Lime Asset has emerged as a hedge fund powerhouse since 2015. Its portfolio ranges from stocks to fixed-income products, real estate and derivatives, and its assets under management have increased nearly fourfold since the end of 2017.

By Son Ji-hyoung (consnow@heraldcorp.com)