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Korean asset managers take heat from H2O fund freeze

An exterior view of a financial hub in Yeouido, Seoul. (Yonhap)
An exterior view of a financial hub in Yeouido, Seoul. (Yonhap)
Korean asset management houses are facing a ripple effect from London-based investor H2O Asset Management‘s decision to halt fund withdrawals for four weeks and to draw up measures to seek redress from the fund freeze, according to an announcement Tuesday.

VI Asset Management and Kiwoom Asset Management, both based in Seoul, have their combined investment of 460 billion won ($387 million) suspended from the redemptions, as the asset managers had bought mutual funds managed by H2O through feeder funds.

Samsung Asset Management, which had also indirectly invested in H2O’s troubled fund, managed to make redemptions to its fund investors in April and staved off the illiquidity crisis.

VI, formerly known as Hi Asset Management, said Tuesday in an announcement the fund freeze “has nothing to do with the asset’s insolvency” and resulted from the need for “proper valuation of assets.” According to VI, the H2O fund it had invested in had about 5 percent exposure to the illiquid asset.

VI and Kiwoom are expected to resume the redemption after four weeks of H2O‘s “sidepocketing,” a process to estimate the scale of the hard-to-sell assets, sift the assets out of the original funds and shift them to newly created funds. The remaining assets not deemed illiquid will also be transferred to separate new funds under the European regulatory framework called the Undertakings for the Collective Investment in Transferable Securities.

This comes after H2O had eight mutual funds frozen at the request of the French financial regulator in late August to ward off the risk of contagion to other H2O mutual funds. H2O‘s funds investing in bonds and currencies took a severe blow in March, by as much as 50 percent, amid valuation uncertainties due to the coronavirus impact. H2O‘s combined holding of illiquid assets reportedly came to about a third of its entire assets, which exceeds the regulatory limit in Europe. Some of the bonds that H2O invested in are known to be associated with German financier Lars Windhorst.

H2O is a subsidiary of French bank Natixis. It was managing over 10 billion euros ($11.8 billion) of assets as of end-July.

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