New York-based hedge fund manager Millennium Managers is likely to be the first foreign hedge fund to set up a Korean entity. Many foreign managers have been in contact with Korean authorities, but the $13.5 billion Millennium is the most serious, according to a report in the local Chosun Daily.
The office of Cho Kunho, Millennium's Singapore-based Asia chairman, declined to comment. Cho is travelling and the office says the Korea licence report "isn't official" and an announcement "can't be released at this moment".
Millennium runs a number of strategies, including relative value, statistical arbitrage, fixed income and event-driven, and it also offers these commingled into the Millennium Partners master fund. It has offices in Hong Kong and Tokyo as well as Singapore.
Cho, a native Korean, had run Asia-Pacific investment banking at Lehman Brothers before joining Millennium in 2007, becoming the first Asia-based vice-chairman of a major global investment bank. Millennium's head of Asia capital markets is also Korean, Lee Hyun.
Other firms reportedly considering an onshore presence include: Aspect Capital; Amundi’s alternative investments division; Harcourt Investment Consulting; Man Investments; and Permal Group, a unit of Legg Mason.
Amundi has a local joint venture fund management company with the National Agricultural Cooperative Federation. Two other European financial groups with a local presence -- Allianz Global Investors and ING (both have asset management and life insurance businesses) -- are also preparing applications to set up local hedge fund operations.
Among domestic firms, Woori Investment Securities has a platform in Singapore, Woori Absolute Partners, that provides investment advisory and funds of hedge funds to Korean institutional investors.
The Financial Supervisory Commission has indicated it is likely to grant a hedge fund investment advisory licence to Millennium this year. The motivation for an international hedge fund manager is access to domestic clients. At a time when capital raising is difficult, going onshore can put a hedge fund much closer to Korea's institutional investors.
The National Pension Service, Korea’s $310 billion investment behemoth, is not yet legally allowed to invest in hedge funds, but its officials say they are working with their regulator (the health and welfare ministry) to change this.
Other local investors are potentially going to become major investors in alternatives, including the Korea Investment Corporation and Korea Post Office.
Initially the onshore hedge fund business is likely to be dominated by local players. The FSC recently announced that 13 local asset management companies would be licensed to engage in so-called “home grown” hedge fund business this year.
But local asset management executives, requesting anonymity, say they welcome the arrival of international players, particularly marquee names such as Millennium.
Their presence will expand the local market’s knowledge, quality and experience, at a time when local institutions are keen to find absolute return strategies and diversify their portfolios. By expanding the pie, it will make it easier for Korean companies to succeed in this space.
According to local executives, the domestic hedge fund market could see up to W2.5 trillion ($2.2 billion) of assets raised this year, with two thirds from institutions and the rest from wealthy individuals.
Domestic firms are likely to introduce their first products by the summer, although FSC limits on use of capital means they will probably have to club together to support institutional investors first.
Long/short strategies are likely to dominate, as there is very little domestic experience for relative value, global macro and other strategies. But there will probably be event-driven strategies as well. Observers expect to see such tactics applied to domestic equities, Asian equities and Asian fixed income.