Hong Kong leveraged fund maxed out exposure for three weeks despite flexible structure

A Hong Kong-based leveraged fund tracking SK Hynix shares kept its exposure at the maximum allowable limit every trading day for three weeks after switching to a supposedly flexible structure, leaving investors with steep losses they had hoped the new model would prevent.

CSOP Asset Management's SK Hynix product adopted a flexible leverage ratio ranging from 1.1 times to two times on August 3, replacing its previous fixed leverage model. The revision was designed to give fund managers room to reduce exposure during sharp sell-offs and cushion portfolio volatility when markets plunge.

Yet daily disclosures from CSOP revealed the fund maintained double-exposure—the upper bound of its new range—on every trading day for three weeks following the structural change.

Investor expectations clash with fund behaviour

Seoul-based retail investor Carol Kim, 32, said she had expected the flexible leverage structure to soften losses but instead found the Hong Kong product "felt like it was dropping even harder than the product in South Korea". Kim's investment ultimately fell 77.2 per cent after the fund held peak exposure throughout the period.

In the first week under the new flexible structure, the CSOP Hynix product tumbled 26.9 per cent, with its share price sliding from HK$42.52 to HK$31.06. Weekly turnover collapsed 44.6 per cent week on week to HK$40.15 billion during the same period.

Regulatory backdrop

The case highlights how funds can technically comply with new flexible leverage rules while still maintaining maximum exposure, amplifying losses for investors who believed the structural buffer would be actively deployed during volatility. The product's behaviour came as Hong Kong regulators had rolled out revised leverage rules intended to offer more downside protection.

Source: South China Morning Post