FSS looks into Lime’s halt of fund redemption
The Financial Supervisory Service (FSS) is looking into Lime Asset Management’s decision to halt redemption of its private equity funds (PEFs) over the past few weeks due to a liquidity shortage.
Lime delayed payment on three funds, Sept. 1, and decided Thursday to halt redemption of other funds worth 620 billion won ($518.61 million) invested in private bonds and Mezzanine instruments, a hybrid of debt and equity capital.
An FSS official said the same day that the agency was not conducting a full-scale inspection, but had requested Lime to submit documents on the matter.
Lime, the largest hedge fund manager here in terms of funds, said the measure was taken to prevent losses for investors.
Around 3,000 individuals are known to have invested in the funds, which were sold through 30 financial institutions, including banks and brokerages such as Daishin Securities, Woori Bank, Shinhan Investment, KB Securities, Kyobo Securities, Shinhan Bank and Korea Investment & Securities.
The delay in fund redemption does not mean the investors will not be able to get their money back.
However, they will be unable to get it back when they want it, which is increasing concern among them.
The investment in Mezzanine instruments, comprised of convertible bonds and bonds with stock purchase warrants, is seen to have been affected by the bearish stock market.
This is because it invested in bonds of companies on the Kosdaq bourse, the share prices of which have dropped amid market circumstances.
Lime currently manages 5 trillion won in equity funds.
But investors have been requesting a resale of their investments after suspicions arose over Lime manipulating its earnings rate.
Earlier this month, Lime delayed the redemption of three funds, amounting to 27.4 billion won.
In August, the FSS conducted an on-site inspection of Lime on allegations of illegal trading practices including “stock parking.”
Stock parking is a practice of selling shares to another party under the premise that the original owner will buy them back after a short period, intended to conceal a stock’s real ownership to appear to comply with regulations.
Lime has denied the allegations of illicit trading practices.
The headquarters of the Financial Supervisory Service in Yeouido, Seoul