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THE INVESTOR
November 21, 2019
Big Reunion

Stocks & Bonds

Lime Asset fund freeze might take years, spills to W243.6b trade finance

  • PUBLISHED :October 14, 2019 - 19:39
  • UPDATED :October 14, 2019 - 19:39
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Top officials of Lime Asset Management vowed to normalize liquidity of the fund’s portfolio assets worth a combined 846.6 billion won ($713.2 million) in a plan that might take more than a year for some of its end-investors to have their money back, at a press conference held Oct. 14.

On the same day, the troubled investment house -- South Korea’s largest hedge fund by assets under management to date -- announced a freeze of its multimanager trade finance fund for pooled investments into 38 funds worth a combined 243.6 billion won. This is an addition to a suspension of a 603 billion-won withdrawal on Oct. 10 from 55 funds investing either in privately placed bonds, convertible bonds or bond warrants.

Lime Asset Management CEO Won Jong-jun at a press conference Oct. 14 in Seoul.
Yonhap

Related:
Investor concerns grow as Korea's largest hedge fund defers fund redemption


For funds investing in privately placed bonds -- used for real estate development project financing, beneficiary certificates and corporate financing -- Lime Asset would be able to secure principal and interest for some 70 percent of the investment by end-2020, Lime Asset representatives told reporters at the conference in Seoul.

In the meantime, Lime Asset would be able to cash out 63.3 percent of investments in closed-end mezzanine funds -- accounting for nine out of 10 -- by end-2020. Within six months, Lime Asset plans to convert over half of the convertible bonds or bond warrants into cash.

“The bearish market has undermined a yield from mezzanine funds, making it harder to secure liquidity, while privately placed debt funds have been maturing,” Lime Asset Chief Executive Won Jong-jun said.

“Up to this point, we have allowed fund redemption by early sell-down of assets. But for the sake of investor protection, we decided to delay fund redemption and buy time to sell assets in a more stable manner.”

However, for trade finance funds involving a total return swap contract with Korean securities houses, it would take at least two years and eight months to get the first fund redemption for 60 percent of the investment, according to Lee Jong-pil, chief investment officer of Lime Asset. The remaining 40 percent would take four years and eight months, as a result of a sell-off of the entire asset to an undisclosed third-party trade finance fund in a structured scheme to secure liquidity.

These are part of about a 1.3 trillion-won investment in fund of funds investing in such instruments. Lee said a combined 489.7 billion won in funds dedicated to privately placed securities and mezzanine products will not be mature until the end of this year, but are still subject to the redemption freeze.

Moreover, the exact dates for end-investors would differ, depending on the date of contract they sealed with the sales channel, as the fund redemptions go directly to the funds.

For trade finance funds, Lee said the fund’s investment in the undisclosed North American funds -- which account for 40 percent of asset allocation -- had been frozen due to losses.

Founded in 2012 as an investment adviser, Lime Asset was granted a license to operate private funds in 2015. While Lime Asset’s assets under management jumped over 50 times compared to end-2016 by end-June this year to as high as 5.7 trillion won, some 839.7 billion won has evaporated over the past four months, as allegations of risky investments came to the fore.

By Son Ji-hyoung (consnow@heraldcorp.com)

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