'W6 tril. put into hedge funds at risk'

By Lee Kyung-min

About 5.8 trillion won ($4.8 billion) in funds put into a fifth of asset management firms appears to be shaky, fueling concerns that the recent slew of fiascos involving mismanaged hedge funds will repeat in the coming months, data showed Friday.

Calls for greater accountability of the creators and sellers of the intricately designed financial products are likely to spread across the financial sector, given almost all leading banks, brokerages and asset management firms profited at the expense of consumers.

Also escalating is a conflict between two financial authorities ― the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) ― whose lack of coordination in the respective functions of policymaking and supervision have caused market confusion, leading to an overall lax oversight.

Data submitted to the National Policy Committee under the National Assembly showed that the operators of 539 funds managed by 46 of the country's 233 asset management firms have either failed or are highly unlikely to redeem the investors

The amount was about 5.83 trillion won as of May, but the figure will soar given the number of redemption request failures will jump as the maturity of more products nears in the coming months.

Of the total, over 1.47 trillion won was sold by Lime, followed by Gen2 Partners (1.08 trillion), Optimus (510 billion won), Discovery (400 billion won) and AlpenRoute (360 billion won).

The funds were pulled from products sold by Korea's top commercial lenders ― Shinhan, KB Kookmin, Woori, Hana and NongHyup ― as well as state lenders Industrial Bank of Korea (IBK) and Korea Development Bank (KDB). Seventeen brokerages that sold similar products include Shinhan, Daishin, NH, Korea, Kiwoom, Kyobo, Samsung, KB, Meritz, IBK and Yuanta.

Fund operators and sellers are likely to come under scrutiny over allegations of mismanagement and malpractice. Many sellers could be held liable for mis-selling, a much-criticized business practice prioritizing sales performance over consumer protection.

This is expected as the FSS recommended July 1 that sellers of Lime-managed funds return investors the entire amount sold, because sales officials at banks and brokerages sold the high-risk products without checking whether buyers understood the risks.

Meanwhile, criticism of the FSC was continuing over its 2015 decision to lower the minimum amount eligible for hedge fund investment to 100 million won from 500 million won.

The easing led an explosive market expansion to 424 trillion won as of July, nearly triple from 176 trillion won in 2014, which the FSS union says is the chief problem behind the recent chain of scandals.

But the FSS will not be able to dodge criticism either, given its November investigation failed to find irregularities involving Optimus, months before the hedge fund was investigated on suspicion of document forgery after having the Korea Securities Depository (KSD) change the names of underlying assets from accounts receivables issued by state-run organizations to bonds payable issued by five non-listed firms with unsound financing.