Samsung AM connects overseas expansion to local growth
Transforming Samsung Asset Management into a top-tier regional player is an important goal, but it’s not just to build new client business, says CEO Kim Suk. Developing a regional investment capability is also key to retaining a valuable domestic mandate.
He says the $15.7 billion Public Fund Investment Pool, a multi-manager mandate serving multiple public pensions from Korea, should diversify by adding international funds.
Kim says the Pool was originally his idea when he worked at Samsung Securities. The idea is to help pension funds and state-linked agencies manage their assets in a cost-effective manner by commingling part of their assets into one investment vehicle. Samsung AM won the business from the Ministry of Strategy and Finance 10 years ago.
The Pool must be bid for every four years; and when the most recent bid took place, in 2009, the size of the Pool had become sizeable enough to attract attention from other fund managers and the mandate became a fierce fight between rivals such as Korea Investment Management and Mirae Asset.
The Pool isn’t up for a renewed mandate for another two years, but already Kim sees providing international exposure as a likely battlefield. He says it could take a few years before the government gives the green light to add overseas assets. But other sources familiar with the Pool say talks are progressing and something could happen by early next year.
Going overseas is part of adding risk assets to the Pool’s management, a process that has evolved. Initially the Pool had to be invested on one-year terms, and deployed by the client funds annually. Therefore investments were limited to one-year time deposits or other money-market instruments.
Today the Pool’s assets are big enough that up to $5 billion is kept on balance over a longer period of time, which has enabled Samsung AM to extend investments into equities and liquid alternative investments, both as funds as well as direct investments. Balanced funds can have up to 30% in equities, although pure equities account for less than 10% of the assets, with some managed by Samsung and other portions outsourced to third-party managers.
Kim says the advisory committee to the Pool is supportive of adding international exposure, but doing so still requires the finance ministry to amend its rules – which ultimately requires support from President Lee Myung-bak.
Samsung is meanwhile boosting its effort to become a top regional fund house, with Kim citing 2015 as the year the firm wants to be considered a “top-three Asian fund manager”, at which point it would like to acquire a global asset-management business.
It plans to focus on its Hong Kong and Singapore offices, which along with the Seoul headquarters should give it the ability to market Samsung as a specialist in Asia ex-Japan and Asia-Pacific portfolios. Kim notes the Singapore office is still only two years old, but by next year the firm can begin to market the India and Asean portfolios managed from there.
Samsung AM has also recently appointed Kim Jun-sung as executive managing director and head of equities in Seoul, an expanded role that oversees active, passive, quant and ETF strategies and research, both internationally and domestically. The position also is responsible for asset-allocation strategies and reports to Kim Suk.
Kim Jun-sung was previously head of Asia ex-Japan equities at Singapore’s Government Investment Corporation. Kim Eul-jin remains MD and head of fixed income.
In addition to beefing up resources, Kim Suk says going international is about patience. “It’s a five-year process,” he says. The reason he believes Samsung AM is at the head of this regional trend is because it has an anchor investor in Samsung Life Insurance. That reliable pot of money enables Samsung AM to build the infrastructure and teams.
“The strategy is not based on spending retail client money,” Kim Suk adds in a not-so-veiled barb at Korean rival Mirae Asset, which built its global emerging-markets business on huge Korean asset gathering and top equity performance in 2005-07. That strategy is now under pressure from redemptions and below-peer-group performance.
Samsung AM appears to be on an upswing, however, with its AUM rising to W1 trillion ($94 billion), including mutual funds and segregated accounts, such as a recent mandate from China Investment Corporation (regarding which Kim Suk declined to comment).