Mirae Asset Securities has commenced the distribution of the first commodity trading advisor (CTA) fund to be made available to qualified Korean investors. A wholly owned affiliate of Robeco Asset Management called Transtrend is managing the strategy.
The Financial Supervisory Service accepted registration of the product in January.
Transtrend was established in 1992 and today has around $8 billion of assets under management (as of the end of March).
Won Hwoi-ku, head of strategy and planning at Mirae Asset Securities, says the move is designed to ready the firm for the liberalisation of the hedge-fund market in Korea. (For details on hedge fund-related developments in Korea, see the May edition of AsianInvestor magazine.)
"We would like to introduce hedge funds to qualified investors, to build experience," Won says. "One of the strengths of the CTA fund is that it has low correlation to other traditional asset classes, which further improves an investor's risk/return profile."
CTAs and other hedge funds should be relevant for the young but growing market for corporate pension funds as well as public funds, which have a need for stable returns, he adds.
Robeco and Mirae began talking about cooperating in 2008. Mirae's securities arm has a proven distribution power (it is the main conduit for the successful Mirae Asset Management) and an interest in diversifying its product line to include hedge funds. The two firms jointly applied for an onshore distribution licence in the third quarter of 2009. The dedicated vehicle for local qualified investors went live in February with internally seeded funds.
Several other alternative funds are also in the process of winning FSS approval. Jeroen Van Wilgenburg, client service director at Robeco's Korea rep office, notes this is the only CTA or managed-futures fund available to date onshore.
Registered as a foreign collective investment trust under the Financial Investment Services and Capital Markets Act (aka the Capital Markets Integration Act), the CTA can only be sold to qualified investors. That includes most pension funds and insurance companies, but not the National Pension Service, which by law is barred from hedge-fund investments.
Since the Integration Act became law in early 2009, a number of overseas hedge funds and fund-of-hedge-fund managers have applied for onshore distribution licences. The financial crisis and managers' poor performance in 2008 meant these applications languished through most of 2009. In addition, there have been several technical amendments to the Integration Act.
Nonetheless there is a clear trend now towards encouraging the development of a hedge-fund industry for both institutional and high-net-worth individual investors. The Korea Capital Market Institute estimates up to $50 billion could shift from traditional funds to alternative investments over the long term; by 2008, more than $2 billion had been so allocated. Less than $500 million is invested in hedge funds by Korean institutions today.