This Time, Geum Private Equity Fund Trouble... 61 Billion Won Redemption Suspension

Responsibility for Product Defects Must Be Examined
Possibility of Illegal Use of Investment Funds Also Considered

[Asia Economy Reporters Ji-hwan Park, Bo-ryeong Geum] A private equity fund related to gold trading, sold for more than 180 billion KRW by Samsung Life Insurance and others, has failed to return money to investors on time. As of last month, the total scale of private equity funds in the financial sector that have suspended redemptions reached about 5.6 trillion KRW, raising concerns that it could reach 6 trillion KRW by the end of the year.

According to the Financial Supervisory Service and the financial investment industry on the 5th, among the 185.7 billion KRW worth of "Universe Income Builder Fund Linked Derivative-Linked Securities (DLS)" sold by Samsung Life Insurance and others since April last year, 61 billion KRW has been suspended from redemption. Of this, Samsung Life Insurance sold 53 billion KRW, and Shinhan Financial Investment (5 billion KRW) and NH Investment & Securities (3 billion KRW) also sold some portions.

The product suspended from redemption this time is based on the "Universal Income Builder (UIB) Fund" as the underlying asset. It is structured to lend short-term funds (deposits) for opening bank letters of credit to trading companies selling physical gold in Indonesia and other countries, earning interest profits at around 4% per annum. The operation is managed by Hong Kong's Wealth Management Group (WMG), and advisory is provided by Universe Asia Management (UAM). NH Investment & Securities created and issued it as a DLS, and it was mainly sold through Samsung Life Insurance's trust channel.

The problem was discovered in June. At that time, UAM informed NH Investment & Securities that there was an issue with the local Indonesian client Magna Capital Resources (MCR) and that a change in the repayment plan was necessary. MCR explained that due to the COVID-19 pandemic, large-scale social restrictions (PSBB) quasi-lockdown measures were implemented in Indonesia, which limited trade transactions. Gold transportation was also temporarily suspended and then resumed, but during that period, MCR was unable to repay the loan.

An NH Investment & Securities official said, "The redemption of the product has been delayed until May next year, and this has been communicated to the sellers," adding, "There is a plan to repay in five installments." Some speculate that the local advisory firm managing the fund may have operated the investment funds differently from the original plan.

The future responsibility for the redemption suspension incident is expected to depend on whether the problem lies with the product itself or the sales process. If it is a product issue, NH Investment & Securities could bear greater responsibility for failing to verify the authenticity of the underlying assets. For sellers, issues of incomplete sales during the investment solicitation process may arise. Financial authorities are currently investigating the facts.

A financial authority official explained, "We plan to analyze this redemption suspension incident by separating the sales and issuance sectors," adding, "For issuers, it is necessary to check whether the fund had asset inclusion problems from the start and how this was indicated in the terms and conditions, while in the sales process, incomplete sales or improper solicitation can be examined."

From the second half of last year to last month, the total scale of private equity funds in the financial sector that have suspended redemptions is understood to be 22 funds amounting to 5.6 trillion KRW. Since the German Heritage Derivative-Linked Securities (DLS) fund declared its first maturity extension in July last year, the scale of redemption suspensions has snowballed over one year. Lime Asset Management funds accounted for the largest amount at 1.66 trillion KRW, followed by Hong Kong-based private equity fund Gentwo Partners fund (1.09 trillion KRW), Alpenroot Asset Management fund (880 billion KRW), Optimus Asset Management fund (550 billion KRW), and German Heritage DLS Trust (450 billion KRW).

A financial investment industry official pointed out, "The private equity fund market, which was 140 trillion KRW in 2013, has tripled to 420 trillion KRW in the first half of this year," adding, "As the market has rapidly expanded, it is expected that there are still considerable undisclosed insolvencies, and the scale of redemption suspensions could exceed 6 trillion KRW within the year."

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