SEOUL, Aug. 5 (Korea Bizwire) — Hedge funds in Korea (private equity funds usually available to those with significant financial resources) are attracting wealthy investors – leading to a surging market.
A hedge fund is an investment in a variety of assets, with limited regulations, that often generate higher returns than other investment products with similar levels of risk.
The hedge fund market in Korea accounted for 788.4 billion won ($708.8 million) in 2012, and reached 3 trillion won ($2.7 billion) in January 2016. However, since then, the market has exploded, with a financial industry official noting that total assets under management (AUM) were expected to be around 5.6 trillion won ($5.04 billion) as of the end of July 2016.
There are currently 133 hedge funds being offered by 44 different asset management companies in Korea. The largest hedge funds, unsurprisingly, are held by Samsung Asset Management, for a total of 1.2 trillion won (nine funds), followed by Mirae Asset’s 577.6 billion won in assets.
The rest of the market features fierce competition between newly created asset management companies. Three new financial institutions, including CK Goldilocks Investment Advisors, joined the market last month, and launched 14 new hedge fund products.
The yields of these new companies’ smaller hedge funds have been relatively high since the beginning of the year, however the reliability of these companies’ yields has not been proven because they have not been in the market long enough, and the funds are small.
“Smaller hedge funds can be managed well as part of their marketing strategy, as such their yields cannot be relied upon just yet. There is a need for an accumulated track record to determine their reliability,” said an industry official.
Because some securities companies are expected to join the competition in the hedge funds market, those in financial circles are expecting the size of the hedge fund market in Korea to surpass 6 trillion won later this year.
NH Investment & Securities Co., Taurus Investment & Securities Co., and Korea Asset Investment Securities Co. are about to join the hedge fund competition this month, once they register as hedge fund management entities.
“Stock funds are not creating high yields, and so they’re being substituted with hedge funds by investors as a means of making profits. Only investors with abundant cash are investing in hedge funds now,” said an official from NH Investment & Securities Co.
“When securities companies join the market this year, the market will grow and become more reliable than it currently is.”
By Nonnie Kim (email@example.com)