Korean Hedge Fund: Performance and Prospective

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As its one-year anniversary comes, Korean hedge fund showed a positive signal that the financial instrument should be able to continue to grow as a year goes by. The initial funds launched at the amount of KRW 149 billion (12 funds with 9 fund advisors). At present, AUM (Asset under Management) successfully exceeds KRW 1 trillion (19 funds with 12 fund advisors).

 

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Investment and trading strategies and composition of investors are still considered to be premature. In terms of investing strategies, most of hedge funds prefer equity long-short strategy – buy undervalued stocks (Long)/ sell overvalued stocks (Short) – to neutralize severe loss and stabilize the procedure. According to the given data, 14 out of 19 fund advisors adopt equity long-short strategy. Other investing strategies, i.e. arbitrage trading and even-driven, expect to be introduced sooner or later. In terms of investors, initial hedge funds showed a significant dependence on prime broker and their affiliates. However, institutional and individual investors begin to show their interest now. At present, it is unlikely for individuals to bet their money into hedge fund because the minimum investment amount is KRW 500 million or above.

While there was a concern that hedge fund may cause severe market risk due to its characteristics including a high leverage and short stock selling, any similar stunt hasn’t occurred yet. So no market distortion and risk by hedge fund are expected any time soon. Financial authority cautiously mentioned that hedge fund was successfully settled down in financial market. Once fund managers become experienced and show a significant track record, more individuals and institutional investors are expected to invest in hedge fund with easing the current regulation of hedge fund practice.

Currently there are no official data with regard to fund’s earning rate due to the confidentiality. As of November 30th, 2012, the following hedge funds are up and running.

 

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In order to facilitate the market, financial authorities consider lowering the entry requirement for a hedge fund manager. According to the recent press release by FSS, it is actually in need to lower the level of requirement so as to allow more fund managers, asset management firms and investment advisory firms to enter into hedge fund market. The less burdensome requirement will encourage more of individuals and firms, who are currently anxious about investing in hedge fund. The following table shows the new criteria considered by FSS. With this new requirement, we would expect more active and vitalized hedge fund market, by the time another year passes!

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