Watchdog urged to supplement hedge fund rules

SEOUL, Sept. 7 (Yonhap) -- South Korea needs to take measures to minimize the possible side effects of homegrown hedge funds in order to help them take root in the local capital market, an expert said Wednesday.
In June, the financial watchdog finalized qualifications for domestic hedge funds with the aim of introducing the first of their kind within this year. Currently, South Koreans are only allowed to invest in hedge funds established in foreign countries.
"Regulations on hedge funds should be fleshed out to minimize their risks that may cause market turbulence," Hwang Kun-ho, chairman of the Korea Financial Investment Association, told a forum here.
A hedge fund is privately pooled money by investors who seek high returns on risky bets using a wide range of derivatives or investment techniques such as short-selling or leveraged buyouts.
Hwang said that hedge funds have come under fire somewhat due to their excessive or speculative bets on short-term returns, but noted that they will also help lubricate the capital markets by bringing more large-scale financing and creating a buffer against irregular external shock, if introduced.
"For this end, preemptive and prudent supervision is necessary and measures to protect investors should also be crafted out," Hwang said. "So securing financially ethical experts and enough capital to a sound level is another must for Korean firms."
The South Korean market for hedge funds would reach US$2.4 billion if they were set up, according to the Korea Capital Market Institute.