Money manager Mirae eyes big South Korea hedge funds push

SEOUL: South Korea's hedge fund industry could reach a size of around 40 trillion won ($35.8 billion) in the next two years now that the government is set to soon allow the products to be launched, a senior executive at the country's top mutual fund firm said.

Rhie Chunyong, senior executive director of Mirae Asset Financial Group's key money management unit Mirae Asset MAPS Global Investments, said on Friday that hedge funds would see flows from derivative products such as equity-linked securities.

South Korea is aiming to mount a challenge to financial centres such as Singapore and Shanghai but the development of the sector - including hedge funds - has been held back by regulation and a perceived lack of skilled personnel.

"Some people question whether we (Korean hedge funds) are capable of doing it, saying we are not proved yet.... But our firm already has experience of managing similar types of products and a broad global network," said the 42-year old, who has worked in the United States and the UK.

Mirae Asset Financial Group, whose money management arms handle about 56 trillion won in assets in total, will launch 8-9 hedge funds when regulations which are awaiting signoff from the government are passed. The change in regulations is widely expected to happen before the end of the year.

While Asia's No.4 economy has emerged as an export-led industrial giant, its capital markets have been hobbled by restrictive regulations and it announced a plan in June to revise the capital markets consolidation act in a bid to give birth to homegrown hedge funds and big investment banks.

REPLICATING SUCCESS

Mirae has emerged as South Korea's largest asset manager, thanks mainly to its early plunge into emerging markets and now aims to replicate that success.

"We aim to mature our hedge fund business to surpass the size of our current assets under management," said Rhie, referring to Mirae Asset MAPS, which manages around 9.5 trillion won in assets.

Mirae Asset already has a track record of running hedge-fund-like long-short funds and private equity funds and Rhie said it would offer annual returns of roughly six percent with its new hedge fund products.

"After the Lehman crisis, the investment community has learned to take measured risks. In fact there is a lot of interest around products that offer solid returns and manageable risks," he said

Both domestic and foreign institutions, particularly pension funds, have shown interest in hedge funds and Rhie said he expected hedge funds to offer better alternatives to the so-called wrap accounts that have become popular here.

Unlike competitors such as Korea Investment & Securities, one of the country's major securities firms which recently signed an agreement on hedge funds with fund manager Permal Group, Mirae plans to go it alone.

"We do not plan to offer fund of hedge funds. We will act as the single manager with expertise in South Korea and emerging markets," Rhie said.

Rhie does not believe that the euro zone's current debt woes is as bad as the Lehman crisis.

"I see Europe becoming more like the way Japan is today. Troubled but not busted."

He expects investor demand for South Korean bonds to keep growing during the current period of market stress and believes that investors will want to buy growth in a region that can still deliver economically.

Copyright Reuters, 2011