HK-based hedge fund’s liquidity crisis spooks Korean investors

Gen2 Partners, a Hong Kong-based hedge fund, has notified South Korean financial institutions of a fund freeze regardless of the deadlines for fund redemption, according to news reports Sunday.

This comes as its flagship fund using a leveraged scheme suffered losses due to the coronavirus outbreak, facing a liquidity crunch.

The Korean entities dedicated to pooling investor money for Gen2 Partners’ multistrategy funds include brokerage houses Shinhan Investment, Kiwoom Securities and Samsung Securities, as well as commercial banks Woori Bank and Hana Bank. The financial institutions and watchdog Financial Supervisory Service are reportedly considering taking legal actions against the investment house by cooperating with Hong Kong’s financial authorities.

The news comes amid liquidity woes surrounding Gen2’s main vehicles, including award-winning KS Asia Absolute Return Fund and Korea-focused KS Korea Credit Fund.

Industry sources said that KS Asia Absolute Return Fund, which used a leveraged position, has suffered a sharp decline in portfolio equity value, while its liquidity risk spilt over to other vehicles including KS Korea Credit Fund. Led by Chief Executive Kyle Shin, who formerly headed Kingdon Capital Management Korea, the hedge fund management house is known to have been mainly targeting investment-grade credits by corporations and banks.
The hedge fund manager has raised over 1 trillion won ($834 million) worth of investment from Korean investors. This is part of 5.6 trillion won of assets via 22 privately pooled funds, which investors filed for arbitration at the FSS’ Financial Disputes Settlement Committee, according to the FSS.

Such funds belong to other troubled investment houses such as Seoul-based Lime Asset Management and Optimus Asset Management, both of which are accused of committing fraud and causing financial damage to investors here.

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