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Fund may freeze payments, citing investor fears

AlpenRoute may delay up to $154 million in payments to investors
Jan 29,2020
Korean hedge fund AlpenRoute Asset Management said Tuesday it may delay payment of up to 181.7 billion won ($154 million), after significant withdrawals from the fund by major brokerage houses.

The announcement comes amid rising fears among hedge fund investors in Korea that they may be unable to retrieve their money, and follows Lime Asset Management’s announcement last October that it would freeze up to 1.3 trillion won worth of its fund due to liquidity problems. That amount has since grown to 1.7 trillion won.

AlpenRoute Asset Management said it has blocked investors from withdrawing payments from three of its open-end funds that are worth 110.8 billion won. One of the funds, which has 56.7 billion won under its management, reached its maturity date Tuesday.

The firm said it is considering suspending payment of 26 of its entire open-end funds by the end of February which would amount to 181.7 billion won asset in total, or 19.5 percent of the hedge fund’s total assets.

“We had investors withdrawing their payments, in which the total amount accounts for 10 percent of the assets we had in open-end funds,” a company press release said Tuesday.

AlpenRoute Asset Management’s payment delay derives from some of the brokerage firms’ abrupt withdrawal of investment it made under the total return swap (TRS) agreement.

A total of 46 billion won worth of investment made under the TRS contract has been withdrawn over the last week, according to industry sources. Local brokerage houses that nullified the agreement include Mirae Asset Daewoo and Korea Investment & Securities.

Domestic hedge fund investors have been rattled in recent months by the dubious operation of funds controlled by Lime Asset Management. That hedge fund’s troubles have to date resulted in the suspension of 1.7 trillion won in payments.

“The latest liquidity issue came about due to [local brokerage firms] being extremely careful about risks,” said AlpenRoute. “Notwithstanding such concerns, most of our funds that are likely to be delayed of its payment consist of highly valuable portfolio. The funds’ profitability will settle down eventually.”

AlpenRoute also emphasized that its latest payment suspension does not share commonality with the Lime Asset Management’s case.

“Our main portfolio doesn’t include mezzanine funds, nor do we invest into trade finance, but we mainly invest into venture capitals and initial public offering companies,” it said. Mezzanine funds account for only 7 percent of AlpenRoute’s assets under management.

It also added that the company doesn’t take a “master-feeder fund” structure.

Such a fund structure is at the core of Lime Asset Management’s issues. Master-feeder funds involve a parent fund that collects investments and then re-directs them to subsidiary funds.

AlpenRoute Asset Management’s portfolio includes Big Hit Entertainment, a management company of K-pop sensation BTS and Market Kurly, a high-end grocery delivery app. It has 930 billion won in assets under its management.

Meanwhile, the Financial Supervisory Service held an emergency meeting Tuesday with executives of six major brokerage firms in Korea. The financial agency told brokerage houses to communicate keenly with the asset managers before adjusting TRS agreements to protect investors.

“Sudden increases of margin requirements on TRS agreement or early termination of the contract has led to payment delays in both Lime and AlpenRoute Asset Managements,” the agency stated Tuesday. “There are concerns that the latest issue might extend market confusion to other private equity funds in Korea and cause damage to investors.”

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]