Large-scale securities firms such as NH Investment & Securities and KDB Daewoo Securities with equity capital in excess of 3 trillion won will now be allowed to invest in hedge funds through their prime brokerage service unit.
The Financial Services Commission said this earlier on June 23 in a legislation notice. Until now, securities companies have invested in hedge funds through other business units unrelated to prime brokerage services due to regulations putting up walls between prime brokerage and equity capital investment units. Due to this forced separation, securities houses have complained that it would cause inefficiency in discovering and nurturing promising hedge funds.
Recently, the Financial Services Commission lowered the minimum equity capital requirement to 2 billion won from 6 billion won while relaxing the rule related to hedge fund registration.
The minimum investment requirement for a hedge fund will also be lowered to 100-300 million won from 500 million won. An official with the prime brokerage service unit in a large securities firm said, "I expect new hedge funds to spring up due to this entry requirement relaxation."
A prime broker is a securities firm which provides a comprehensive range of services needed for operating hedge funds including credit provision, securities lending and borrowing, and consulting.
Currently five securities firms are eligible for such services including Samsung Securities, Korea Investment Securities, Hyundai Securities, NH Investment & Securities and KDB Daewoo Securities.
