'Rhyme 100% Compensation'... What About Other Suspended Redemption Funds?

[Asia Economy Reporter Koh Hyung-kwang] As Lime Asset Management's trade finance fund has been finally decided as 'contract cancellation, 100% compensation,' it is expected to influence compensation for damages in other private equity fund cases in the future. Although the compensation ratio may vary depending on the timing and extent of the damage, such as investments different from prior notices and the occurrence time of insolvency, there is a high possibility that victims will be supported if illegal acts by the asset management company and distributors are confirmed.

According to the financial investment industry on the 1st, the Financial Supervisory Service disclosed the results of the Dispute Mediation Committee held privately the day before and concluded that 'contract cancellation due to mistake (Civil Act Article 109)' is possible for the trade finance fund sales by Lime and Shinhan Financial Investment after November 2018. Accordingly, investors who invested after November 2018 can receive a full refund of their investment.

Out of the total 243.8 billion KRW of trade finance funds with suspended redemptions, about 190 billion KRW were sold after November 2018. Among these, about 30 billion KRW were repaid early, and the remaining 160 billion KRW must be fully refunded to investors by Lime and Shinhan Financial Investment.

The Optimus Asset Management-related fund, which recently caused a large-scale suspension of redemptions, also has damage estimated up to 500 billion KRW. Initially, investors were attracted by claims of investing in public institution sales bonds with almost no risk of loss, but it was revealed that the fund invested in illiquid bad bonds such as private bonds issued by unlisted companies, private loans, and companies on the verge of bankruptcy. Since the fund incorporated distressed assets different from the product description presented at the time of sale, compensation for damages will be inevitable once the loss amount is confirmed.

In addition, most private equity funds with suspended redemptions due to abnormal management behaviors, such as the Discovery Fund investing in overseas distressed assets and the Italy Healthcare Fund investing in bonds with long maturities and uncertain recoveries contrary to the explanation of investing in Italian medical sales bonds, are expected to follow the footsteps of Lime's trade finance fund. A financial investment industry official said, "The maturities of products created in earnest after the private equity fund regulations were eased in 2015 are expected to continue maturing from last year through next year," adding, "Private equity fund accidents will continue in the future."

Private equity fund victims stated, "Although the truth about private equity fund damages is gradually being revealed, no financial company is showing a responsible attitude," and insisted, "Prompt and proactive compensation measures should be taken not only for the Lime incident but also for various series of private equity fund incidents."