Large losses on leveraged positions at Hong Kong-based Gen2 Partners earlier this year prompted a liquidity squeeze and a freeze on early redemptions.
South Korea’s FSS (Financial Supervisory Service) is reportedly considering taking legal action against Hong Kong-based hedge fund Gen2 Partners over a fund freeze.
Gen2 Partners is said to have used a leveraged scheme in its flagship fund which resulted in large losses during the Covid-19 volatility, prompting a liquidity squeeze. Early repayment was due on some of the investment in April, but the company was unable to make payment.
Brokerage firms Shinhan Investment, Kiwoom Securities and Samsung Securities, and banks Woori Bank and Hana Bank, are among the Korean entities that helped to pool investor money for Gen2 Partners Korea-focused multistrategy funds.
Gen2 Partners manages about KRW 5.6 trillion (USD 4.7 billion) in assets between 22 privately pooled funds. Over KRW 1 trillion of this was raised from Korean investors, who have requested arbitration from the FSS’ Financial Disputes Settlement Committee.
The financial institutions involved and FSS are said to be considering taking legal action against Gen2 Partners in coordination with Hong Kong authorities.
Some of the funds are said to belong to Lime Asset Management and Optimus Asset Management, both of which are the subject of ongoing scrutiny in Korea for suspending fund redemptions and for allegedly defrauding investors.
Korean regulators have recently agreed on a plan to establish a dedicated team to inspect all private fund operators in the country over the next three years.