Optimus fund freeze spooks investors as scrutiny intensifies

South Korea’s investment house Optimus Asset Management froze two more feeder funds worth a combined 29.7 billion won ($24.75 million) Wednesday, as prosecutors started to look into fraud allegations against the troubled asset manager.

At the same time, Korea’s top financial regulator vowed to carry out a thorough inspection of all privately pooled funds here in a preemptive move to protect fund investors.

Optimus on Wednesday notified NH Investment & Securities that the funds needed extensions on the deadlines to redeem investors’ money. The funds were offered to retail investors via NH Investment & Securities’ sales network, which had sold over 80 percent of products associated with Optimus worth a total of 535.49 billion won as of March. Some 410 billion won worth of feeder funds sold by NH Investment & Securities have yet to reach maturity.

This is in addition to a freeze by Optimus on June 17 on 38.4 billion won worth of funds sold by NH Investment & Securities and Korea Investment & Securities.

Optimus is alleged to have raised the funds to invest in privately placed bonds by companies alleged to have used the proceeds to acquire other listed companies, which could be considered a breach of contract with fund investors.

Yet Optimus marketed the funds by saying they targeted trade receivables of companies dedicated to state-led construction projects, which would promise investors a more stable return.

The Financial Supervisory Service, the regulatory watchdog, has been probing the case since Friday.

NH Investment & Securities chief executive Jeong Young-chae on Tuesday sent a letter of apology to its fund investors for “sales of problematic products.” He added that the brokerage house was carrying out a due diligence on Optimus’ portfolio. Some 800 investors have bought products associated with Optimus via NH Investment & Securities.

Korea’s top financial regulator is keen on preemptive measures to avoid repeating the failure of privately pooled funds.

On Tuesday, Financial Services Commission Chairman Eun Sung-soo told reporters that the FSC was looking to inspect a total of some 10,000 privately pooled funds here in order to “restore trust in the Korean capital market participants” at Seoul’s state-led tech forum NextRise 2020.

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