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The firm is working with Societe Generale to provide a structured note based on a global fund of hedge funds for domestic institutional investors. Separately it is readying a Korea equity long/short fund that it will market to international investors. Both products will be domiciled in the Cayman Islands.
Charles Kim, executive director of ShinyoungÆs global business division, says domestic institutions are keen to get exposure to international alternative assets but remain very risk-averse, and may feel more comfortable working with a domestic provider they know.
Shinyoung Securities will manage the fund of hedge funds. Kim acknowledges the team doesnÆt have experience managing such a product but will work with SGÆs unit, Lyxor Asset Management and invest only in hedge funds on its approved product list. Meanwhile SG will write a note and act as guarantor promising 100% capital protection. SG will also hedge the product back to won.
Kim says few domestic institutions are ready to take the plunge into single hedge-fund strategies, nor are their officers remunerated in a way that would encourage them to take such a risk. They are willing to give up some performance so long as their decision doesnÆt lose money. ôThey donÆt need 30% upside, they just need to beat global bonds,ö he explains.
The fund of funds aims to keep volatility below 10% and achieve returns of 11-12%. It will charge an annual 1.5% management fee, including admin and other charges, and a 10% performance fee.
Meanwhile Shinyoung Securities is in the process of putting together its first hedge fund for overseas investors interested in Korean equities. The fund will mirror a successful fund with a five-year track record managed by the team at Shinyoung Investment Trust, a $4 billion fund management affiliate.
Shinyoung Securities will hedge the fund via index futures but at this point will not short single stocks. Kim explains it is a value fund with longer term holdings, usually two to three years; also, shorting stocks domestically remains difficult, and Shinyoung believes the market overall should offer upside.
The firm hasnÆt yet launched this product as it is currently selecting a global prime broker and fund administrator, which will take over from existing domestic service providers. The original long-only fund on which it is based has in the past five years achieved annualised returns of 18.7%, with 11.9% volatility and a Sharpe ratio of 1.5, in won terms. The long/short version will be also be denominated in won but Shinyoung Securities can hedge into other currencies if clients request it. It will charge an annual management fee of 1.5% and a 15% performance fee.
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