S.Korea revises regulations to allow homegrown hedge funds

SEOUL, June 16 Thu Jun 16, 2011 2:48am EDT

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SEOUL, June 16 (Reuters) - South Korea said on Thursday it would revise capital market regulations to allow homegrown hedge funds, betting the move would grow its financial industry, improve market liquidity and encourage funds into new business areas.

The revision comes after the country's capital markets consolidation act, which came into effect two years ago during the global financial crisis, was criticised for failing to help nurture global financial players from the Asia's fourth-largest economy.

"When compared to the size of our economy, which is the world's seventh-largest exporter and has the world's 13th biggest gross domestic product, the fact that there's no homegrown hedge fund shows that our financial industry has been discriminated (by regulations)," the Financial Services Commission said in a statement.

"The revision will creates new alternative investment market and grow our fund management industry."

Under the new regulation, individual investors will be also allowed to directly invest in hedge funds, with minimum investment requirement set at 500 million Korean won ($459,707).

Regulations on hedge fund management will be also eased -- borrowing limits will be raised to 400 percent of the fund's assets from 300 percent, value at risk from derivatives trade will be allowed to 400 percent and a mandatory investment requirement that meant more than 50 percent of fund assets had to be put into companies under restructuring will be scrapped.

Hedge funds willl neeed at least 6 billion won in paid-in-capital to get regulatory approval and at least three managers with a track record in management.

The FSC expected the revision to take effect from September.

($1 = 1087.650 Korean Won) (Reporting by Miyoung Kim; Editing by David Chance)

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