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Investors go cool on private equity fund products

DLF scandal and the problems at Lime were a reality check
Feb 05,2020
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Private equity funds (PEFs) were once all the rage, as they promised outsized returns and what appeared to be a low level of risk. Low interest rates made them especially popular, and sales were particular good in the first half of last year.

They quickly fell out of fashion. Following the derivative-linked fund (DLF) misselling scandal in the latter half of 2019 and in light of the suspension of redemptions by Lime Asset Management, investors are thinking twice about putting their money into private investment funds.

According to the Korea Financial Investment Association Tuesday, the number of PEF accounts at banks was 37,400 December last year, a 37 percent drop from June, when the total was 59,000 accounts.

Total investments in bank-sold PEFs dropped from 28.9 trillion won ($24.3 billion) to 25.3 trillion won over the same period.

Woori Bank and Hana Bank, which were hit with heavy sanctions by the regulators for misselling DLFs, experienced the steepest drop in total PEF accounts.

The number of PEF accounts at Woori Bank fell by 54.9 percent, from 15,700 in June 2019 to 7,094 in December. The amount of investment fell by 35.8 percent, from 7.5 trillion won to 4.8 trillion won, during the same period.

The number of PEF accounts at Hana Bank fell 41.5 percent in the last half of 2019, to 9,334 in December compared to 15,900 in June. Total investment declined from 3.9 trillion won to 3.1 trillion won during the same period, a 20.4 percent drop.

At Shinhan Bank, the number of PEF accounts dropped to 6,709 from 7,792 in the latter half of last year.

KB Bank, which avoided the DLF scandal, experienced an increase. The number, which stood at 6,127 in June, rose by 5.4 percent to 6,455 in December. The investment amount increased from 5.5 trillion won to 6.3 trillion won in the same period.

“With the financial regulator banning local banks from selling complex, high-risk private equity funds, additional sales of PEFs at banks will continue to be challenging this year,” said Jun Bae-seung, an analyst at eBest Investment & Securities.

Sales of PEFs at brokerage houses rose. During the same period, the number of PEF accounts at local brokerage houses increased from 80,545 to 84,593.

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