Bo-eun leads the digital content team. She has covered foreign affairs, North Korea, tech, economy and gender issues at The Korea Times. She did a short stint at the South China Morning Post in Hong Kong, where she obtained a new perspective on news production and life. Small sources of joy for her are lounging in the sun, having a good latte and swimming.
Lime fiasco feared to spill over into more funds
Brokerages on Yeouido, Seoul / gettyimagesbank
By Kim Bo-eun
FSS to look into AlpenRoute's suspension of fund redemption
By Kim Bo-eun
There are growing concerns over a possible fund run after AlpenRoute Asset Management, a mid-sized hedge fund manager here, suspended payments on some of its funds following a series of redemption requests from securities companies.
AlpenRoute said Tuesday that it will freeze 110 billion won in assets, halting fund withdrawals for investors in a move to forestall a possible liquidity risk.
It is the second fund management firm here to suspend the redemption of funds following Lime Asset Management
Once brokerages seek to retrieve more funds under the same contracts, it is probable that many investors will rush to withdraw their money, which could stoke fears of a fund run.
According to sources and media reports, Korea Investment & Securities last week requested AlpenRoute pay back 26 billion won provided under a total return swap (TRS) contract. This is an agreement on exchanging the return of reference assets. Hedge funds use TRS contracts to obtain leverage on reference assets.
Brokerages have asked for their funds to be returned, amid concerns over the case involving Lime Asset Management. They financed investments for Lime, which has frozen 1.7 trillion won in assets.
Investors may face huge losses, as Lime is known to have engaged in a Ponzi scheme, an investing scam luring investors by promising high rates of return and using new investors' funds to pay returns to early investors
"We sought to retrieve the funds as part of risk management efforts," a Korea Investment & Securities official said Tuesday. "We have deemed it a problem that AlpenRoute is unable to liquidate assets to pay back funds, as an investment firm managing assets amounting to 1 trillion won."
Mirae Asset Daewoo, the brokerage unit of Mirae Asset Group, called for AlpenRoute to pay back funds under a 16 billion won TRS contract, stating it would not extend its existing TRS contract.
"We only started TRS transactions recently, and there have been very few cases of extending existing contracts," the official said.
Shinhan Investment has also called for redemption of funds under its TRS contract with AlpenRoute.
AlpenRoute said the scale of funds brokerages are seeking to retrieve are about 5 to 7.5 percent of their assets under management.
The investment firm stated it may halt the redemption of funds amounting to 180 billion won by the end of next month, which is about 20 percent of the assets it manages.
“The liquidity issue was caused by extreme risk aversion due to worsening market conditions. Contrary to concerns, however, most of the major funds whose withdrawals have been postponed have sound investment portfolios,” AplenRoute said in a statement released Tuesday.
The hedge fund manager is believed to be unable to repay the funds as it invested through mezzanine and pre-initial public offering (pre-IPO) funds that are difficult to liquidate. A mezzanine fund invests in a hybrid of debt and equity financing. A pre-IPO fund invests in large amounts of stock before the shares of a company are available on public exchanges.
AlpenRoute has mainly invested in promising unlisted startups including boy band BTS' agency Big Hit Entertainment, online grocery delivery startup Market Kurly and Dayli Financial Group.
Meanwhile, it remains to be seen whether brokerages will continue to retrieve their money from hedge funds, which will endanger redemptions for investors.
Six brokerages ― Mirae Asset Daewoo, NH Investment & Securities, Samsung Securities, Korea Investment and Securities, KB Securities and Shinhan ― are known to have provided up to 2 trillion won under TRS contracts with 19 hedge funds here.
Mirae Asset has 38 billion more under TRS contracts with AlpenRoute.
"We will wait for the contracts to mature, but look out for risks," the official said.
Korea Investment & Securities said it signed TRS contracts only with Lime and AlpenRoute.
For Lime, Shinhan, KB and Korea Investment & Securities, provided 670 billion won under TRS contracts which is 41 percent of the 1.6 trillion won in funds that have been frozen.
Under the TRS contract, the brokerages are prioritized over investors in retrieving their money.
Lime has proposed consultations with the brokerages and entities that sold its investment options, to figure out how much individual investors will be able to get.
Financial authorities on Tuesday requested brokerages to refrain from cancelling TRS contracts.
The Financial Supervisory Service said it is looking into AlpenRoute.
“We are looking into whether liquidity issues have arisen for reasons other than brokerages' calls to cancel TRS contracts. We are looking to find out what led to AlpenRoute to suspend the withdrawal of funds and when it can enable redemptions,” an official said.