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[Meet the CEO] Korea Investment seeks hedge fund edge

CEO Ryu says brokerage will lead market on its strength in wealth management, risk control

Korea Investment & Securities is enhancing its private equity operations as the nation’s major brokerage seeks to get ahead in the burgeoning domestic hedge fund industry.

Chief executive officer Ryu Sang-ho said the company will launch a hedge fund-style investment vehicle this month to bet local stocks and futures.

The government is pushing to ease regulations on private equity funds to nurture homegrown hedge funds as part of its renewed efforts to develop the domestic capital market.

In an interview with The Korea Herald Ryu said the company is better positioned in the nascent market thanks to its prowess in portfolio investment and risk management.

“We aim to gain an early edge in the local hedge fund industry,” Ryu said.

“Our one-year of ‘I’M YOU’ service, a comprehensive wealth management product, proved our strength in risk management. We hope to further the establishment in the hedge fund industry.”

I’M YOU, launched in March last year, managed to collect over 400 billion won ($368 million) in two months and maintained over 7.19 percent of return.

Its new product will be managed by Korea Investment Holdings.

A hedge fund, typically open to only wealthy investors, pursues absolute returns above the market rate by taking arbitrage opportunities in stocks, bonds and commodities. It is distinct from mutual funds in that managers employ a variety of investment strategies for a group of private, risk-averse investors who meet criteria set by regulators.

The Financial Services Commission chairman Kim Seok-dong last week said the financial industry will go through a major overhaul this year including the allowance of domestic hedge funds.

The regulator plans to phase out requirement on onshore fund managers to invest more than 50 percent of their assets in corporate restructuring programs. Its proposal also includes expanding debt to equity ratio restriction from the current 300 percent.

The overall change, subject to the approval of the National Assembly, will mark the second phase of financial reforms after the introduction of the Capital Market Consolidation Act introduced in 2009.

“I don’t expect the deregulation to bring a big impact into the market, it just means one more onshore product for high net worth individuals,” Ryu said.

“But competition will be there for brokerages to come up with a more specialized product and fund managers to catch more high net worth individuals.”

Ryu took the office in 2007 as the youngest CEO in the industry. His plan is to take the success of I’M YOU to develop specialization in strategy and region-specific hedge funds.
Korea Investment & Securities CEO Ryu Sang-ho (Park Hyun-koo/ The Korea Herald)
Korea Investment & Securities CEO Ryu Sang-ho (Park Hyun-koo/ The Korea Herald)

The homegrown hedge funds will be attractive to local investors subject to investment taxes as buying and selling local stocks would cost them less ― as opposed to tapping into hedge funds managed abroad.

The veteran stock salesman predicted a bigger market for wealth management than stock broking business.

“Customers increasingly demand a one-stop place to take care of their assets. Demand for good stock pickers will always be there but those offering comprehensive wealth management services will last longer.”

Ryu said seven years of his sales experience spent in London during the 1990s impressed upon him the importance of retaining the best talent. He said Korea Investment does this by offering the most competitive remuneration package and promotion opportunities based on performance.

“Brokerages only have the building, computers and people and that is why talent is so important. This industry is famous for a high turnover rate seeking higher pay.”

The company is one of 10 local brokerages subject to compensation deferment rules introduced last year. The ten companies now need to pay employee bonuses in three separate portions across three years or more, until all possible losses are realized.

Ryu forecast the KOSPI to hit 2,250 in the second half of the year.

“Most of the Japan risk is now realized and the earthquake has been both good and bad for Korean companies. I’d say the Middle East poses bigger risk since a spread of the crisis outside Libya could lead to a blow up of the region.”

By Cynthia J. Kim (
Korea Herald daum