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KOFIA vows to restore trust amid snowballing hedge fund fiasco

Na Jae-chul, chairman of the Korea Financial Investment Association, speaks at a press briefing in Seoul, Thursday. (KOFIA)
Na Jae-chul, chairman of the Korea Financial Investment Association, speaks at a press briefing in Seoul, Thursday. (KOFIA)

The chief of an association representing 440 brokerages and asset management firms in South Korea apologized Thursday for a series of hedge fund fiascos and vowed to strengthen voluntary monitoring of the market.

“We will concentrate on our capability to rebuild trust and carry out sustainable innovative tasks,” said Korea Financial Investment Association Chairman Na Jae-chul.

“We think now is the time for the market players to open their eyes. To help them make a new leap forward, we plan to provide a manual and a checklist for the local hedge fund firms, so that they can assess whether they are doing well in terms of internal controls and risk management.”

Recently, a number of local investors have faced losses due to the poor management of hedge funds by investment entities. Some firms such as banks, brokerages, asset management companies and hedge fund operators either engaged in fraud or missold funds.

Major hedge funds such as Lime Asset Management’s Pluto FI D-1 and Tethys II and Optimus Asset Management’s Optimus Creator 15 and 16 have suspended redemption.

Stressing that hedge funds are investment products that should be operated with creativity and autonomy, Na said loose internal controls could give rise to moral hazard. To prevent that from happening, KOFIA will provide consulting services, he added.

The nonprofit independent organization pledged to continue discussing the matter with financial authorities to strengthen the roles among prime brokerage services, funds sellers and funds management firms via cross-observations and mutual control.

Since Na began his three-year term as its fifth chief Jan. 1, he has said building trust in the capital market is the primary goal for this year.

As the first step, KOFIA enacted regulations for the development and sale of high-risk financial products in June, following controversies over derivative-linked funds last year.

“Despite all the controversies and changes, we believe that the local capital market is at the stage of genuine growth. Unlike the time before COVID-19, retail investors are leading the local market now,” he said.

“Adjusting to the ‘new normal’ with low-interest rates and low development, the capital market has to play a role as a stout partner to increase investors’ assets.”

By Jie Ye-eun (yeeun@heraldcorp.com)
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