By Jhoo Dong-chan
Korea's hedge fund market has surpassed 20 trillion won ($18 billion) as more investors seek to put money into diverse investment tools for larger profits.
It only took six years for it to become a 20 trillion won market, since hedge funds were introduced here in December 2011 under approval from Korea's Financial Services Commission (FSC).
Attracting capital from wealthy individuals or institutional investors, a hedge fund invests in a wide range of assets utilizing complex portfolio-construction and risk-management techniques. Unlike mutual funds, hedge funds cannot be sold to the general public, and are subject to less government regulation.
Unlike hedge funds in other countries, financial authorities limit the size of hedge funds in Korea, and the hurdle is relatively high to join hedge funds here since at least 100 million won ($90,203) is required. However, domestic hedge funds have boasted a steady return ratio for years, and now wealthy people are rushing to stand in a long line to join them.
According to the Korea Financial Investment Association, the total volume of hedge funds operated in Korea was 20.85 trillion won as of June 12. It only took a year to double in size since it had reached 10 trillion won in May last year.
Many hedge funds aim to achieve a positive return on investment regardless of whether markets are rising or falling to gain an “absolute return.” In Korea, the annualized return of domestic hedge funds was on average 5.38 percent between 2012 and last month while the nation's benchmark KOSPI rose 4.51 percent in the meantime.
“The key rate is now 1.5 percent. There is no point in saving,” a KB Kookmin Bank official said.
“People eventually look for alternatives with a better return rate such as the stock market or equity funds. Especially, wealthy people choose hedge funds as a means to manage their assets.”
Time Portfolio Asset Management, one of the nation's leading hedge funds, posted a 35.63 percent return through its hedge fund product, the Time-M, since the product's launch in May 2016.
The average return ratio of domestic hedge funds has never posted in the negative for the last six year. It enjoyed a 7.31 percent return ratio even in 2014 when the KOSPI index fell by 4.76 percent.
The size of the market was also boosted particularly in October 2015 when financial authorities eased the related laws lowering entry barriers for asset management firms.
“More people are interested in hedge funds as uncertainty is growing in the nation's stock market,” said a Samsung Securities official.
“They save up money for a popular asset management firm to introduce a new hedge fund product.”