By Kim Jae-won

When Korea’s hedge funds made their debut six months ago, many people, including top regulators, expected they would help prop up the local capital market. However, more than half of them have had negative returns during the past six months.

Out of 20 hedge funds approved by the financial authorities, 11 saw losses from early December to June 5.

In particular, KDB Pioneer Long Short Neutral 1 and Hanwha Asia Pacific Long Short 1 showed the worst returns with minus 9.69 percent and minus 5.67 percent respectively, far below the average for stockrelated funds, which marked minus 2.84 percent during the same period.

Two hedge funds managed by Shinhan BNP Paribas Asset Management, a joint entity of Shinhan Financial Group and BNP Paribas, also showed poor performances with losses of 6.31 percent and 4.3 percent, respectively.

A few companies, such as Samsung Asset Management and KB Asset Management, did relatively well. Samsung’s H-Club Equity Hedge No. 1 marked the best result with a 4.53 percent profit-to-investment ratio, followed by KB’s K-Alpha C-S Class which saw a profit ratio of 3.24 percent.

Financial Services Commission Chairman Kim Seok-dong has lost face as he expected the funds would offer returns of 6 to 8 percent to investors, much higher rates than banks’ term deposits.

The Korean government revised capital market regulations last year to allow local hedge funds, believing the move would help the financial industry grow, improve market liquidity and encourage funds in new business areas.

Asset management companies managing the funds say there will be a big bang in the sector soon.

“The hedge fund industry is in the middle of reshaping. Some will collapse in the near future while others will survive absorbing others’ clients,” said Jang Kyung-ho, a spokesman of Mirae Asset Global Investments, a subsidiary of Mirae Asset Financial Group.

Jang, however, said that it was too early to predict the future of industry as players will improve by learning through trial and error.

Hedge funds offer a wider range of investment and trading activities than other options but are only available to particular types of investors, specified by financial regulators. These investors are typically institutions, such as pension funds, university endowments and foundations, and high net worth individuals.