Half-Cut Lime Fund... Some Suffer Total Principal Loss

[Asia Economy Reporter Koh Hyung-kwang] Some funds managed by Lime Asset Management, which caused a redemption suspension crisis worth 1.67 trillion KRW, have resulted in a 100% principal loss, meaning customers will not receive any of their invested money back. Among the funds suspended from redemption by Lime Asset Management, the subsidiary funds with total return swap (TRS) contracts showed relatively higher loss rates.

According to the financial investment industry on the 15th, as of the end of last year, the Lime Asset Management funds with deferred redemptions consisted of 4 parent funds and 169 subsidiary funds, totaling 173 funds with a scale of 1.6679 trillion KRW. These funds were sold through 19 companies including Woori Bank, Shinhan Bank, Hana Bank, and Daishin Securities. There are 4,035 individual accounts totaling 994.3 billion KRW and 581 corporate accounts totaling 673.6 billion KRW.

As a result of due diligence, one of Lime Asset Management’s parent funds, 'Pluto FI D-1' (book value 1.2337 trillion KRW), showed an expected loss rate of 32-50%. This means it could lose up to half its value. Another parent fund, 'Tethys No. 2' (book value 293.1 billion KRW), was estimated to have an expected loss rate of 22-42%. The maximum expected loss amount from just these two funds is 735.4 billion KRW. When combined with other losses, the total is estimated to reach the trillion KRW level.

Some subsidiary funds with TRS contracts with securities firms have lost their entire invested principal. A TRS contract is a type of loan concept where a securities firm purchases assets on behalf of the fund and receives fees in return. As a result, the securities firm holds the status of a first-priority creditor, so when the fund is liquidated, the loan is repaid before the investors’ capital. Ultimately, the securities firm is repaid first, and the remainder is distributed to investors. Some investors are therefore facing a situation where they lose 100% of their investment. Lime Asset Management stated, "Three funds including 'Lime AI Star' No. 1, 2, and 3 incurred total losses due to adjustments in the parent fund’s net asset value."

This content was produced with the assistance of AI translation services.