The number of private funds in South Korea has fallen sharply over the past three months amid controversies over derivative-linked funds and a liquidity crisis at a major company, data compiled by a market operator showed Tuesday.

According to the Korea Financial Investment Association, the number of private funds -- including private equity funds and hedge funds -- in the country tallied 11,177 as of the end of October, down 302 from three months earlier.

October marked the third consecutive month of decline. The number peaked at 11,479 as of the end of July.

 

Lime Asset Management Co. suffered the biggest drop in the industry, holding 303 private funds as of end-October, down 73 or 19.3 percent during the given period.

The total value of its assets came to 4.5 trillion won ($3.9 billion), having shed 1.4 trillion won in three months.

The company faced suspicions that it had relied on trading irregularities to boost fund yields. In late October, it was forced to freeze withdrawals worth nearly 850 billion won due to a liquidity shortage.

Woori Asset Management and Meritz Asset Management respectively saw their corresponding figures slip 418.4 billion won and 411 billion won during the same period.

Marking a contrast, other major asset managers such as Hanwha Asset Management, Samsung Asset Management and KB Asset Management all saw the total value of their assets climb more than 1 trillion won.

Industry watchers say some local banks have created distrust in the industry as a whole by improperly selling derivative-linked securities and derivative-linked fund products. Doing so, they point out, presents the risk of losing nearly all the money investors put in.

By Jie Ye-eun (yeeun@heraldcorp.com)