Lime Asset offers little comfort for retail investorsThe news keeps getting worse for investors who parked their money with troubled hedge fund operator Lime Asset Management.
The recovery rates for two problematic funds - Pluto FI D-1 and Tethys 2 - will be a little above 50 percent in a worst case scenario, Lime Asset announced Monday. But for its individual investors, the amount will be even smaller.
Both Pluto FI D-1 and Tethys 2 are subject to total return swap (TRS) agreements with local securities firms, giving those institutions a priority in retrieving investment when the funds record negative profitability. This means that when securities firms collect their investments from the damaged funds, only a little will be left for retail investors.
The hedge fund operator has come under fire for suspending withdrawals of investments worth 1.6 trillion won ($1.4 billion) from its troubled funds.
Withdrawals have been suspended from four of its funds. Those funds have money tied up in 173 sub-funds, of which 29 are subject to TRS agreements with three local securities firms - Shinhan Investment, Korea Investment & Securities and KB Securities.
Lime Asset is midway through an outside audit of the troubled funds being conducted by accounting firm Samil PwC. The hedge fund operator disclosed partial results of that review in an announcement Monday.
“The due diligence was to evaluate the value and investment structure of the underlying assets at Pluto FI D-1 and Tethys 2,” Lime said. “The inspection was to see if the underlying assets really exist and to check how many negative factors reside in the funds.”
The accounting firm determined that the recovery rate of Pluto FI D-1 stood at between 50 and 65 percent, while that of the Tethys 2 stood at between 58 and 77 percent.
The appraised value of the two funds last October was 937.3 billion and 242.4 billion won, respectively.
This means that investors of the Pluto FI D-1 fund will be able to collect between 609 billion won and 468 billion won. But those totals don’t take the underlying TRS agreement into consideration.
Under the same conditions, investors of Tethys 2 fund will be able retrieve between 140 billion and 186 billion won.
Lime Asset Management said it was unable to determine how much additional losses would occur for its investors. The TRS agreements can’t be assessed yet because the leverage obtained from the agreement differs based on the retailer and the fund’s structure, the company said.
“One thing to be noted is that these [recovery rates] are just estimates,” the hedge fund operator said. “They will be used to calculate the base value of the funds.”
Lime Asset Management will adjust the base price of the two funds by the end of February. Based on the standard price, the payment plan for its investors will be delivered by the end of March.
BY JIN EUN-SOO [email@example.com]