Korean investors are renowned for focusing on quick profits above long-term investments, making the country’s fund flows both unstable and, at times, unpredictable.
In a day the funds market can see an inflow of $3.5 billion, only to witness it drain out again just as quickly. This is a pattern that repeats itself again and again.
The first investment trust was established in Korea in 1969, although significant growth in asset managers, funds and industry assets under management (AUM) was not witnessed in the country until the late 1990s. Subsequent developments in legislation and increasing levels of affluence created a favourable environment for growth that resulted in further proliferation.
But a little-discussed characteristic of Korea’s asset management industry is that very few fund houses combine different strategic investment styles under one roof, unlike in the US and Europe, where this has evolved over decades.
Korean fund managers tend to invest either in value or growth stocks. The majority have a “growth investing” focus borne of a bias towards stock markets stemming from the country’s rapid economic expansion. Other asset allocators predominantly focus on stocks that are undervalued by the market relative to their intrinsic value.
Differentiation in investment style, therefore, is still a relatively new concept in the country, and as such not many houses possess the experience necessary to implement different strategies. One that does is KB Asset Management, and AsianInvestor took the opportunity to catch up with Cho Jaemin, the company’s chief executive.
Cho notes that long-only fund houses in the US and Europe typically run equity funds (value, growth, core, niche/sector); bond funds (government, municipals, corporate); and money market funds, with possible differences depending on the specialty of a given fund manager.
“This is a result of natural evolution for global asset managers and can easily be viewed as a best industry practice, proved over years,” says Cho.
KB Asset Management itself manages value, growth and core investment strategies based on long-term views. It has built its product line around large-cap growth funds and traditional, actively managed ones.
Its equity funds have consistently outperformed the Kospi -- they are up an average of 43% over two years (Kospi 29.33%), 13% over three (Kospi -3.78%) and 78% over five (Kospi 53.38%). Their one-year performance is 14.31% (Kospi 11.93%) and the return to September 30 this year was 11.30% (Kospi 11.29%).
The asset manager also has an extensive line up of bond funds, primarily on the institutional side, and is, in fact, the largest money market fund (MMF) manager in the country with around $6 billion as at mid-October this year.
For years public bond funds were not popular with Korean retail investors as the returns were unappealing relative to equities. However, this has changed since the crisis, when investors rushing into safer assets.
KB Asset Management is also proud of the fact that it had virtually no exposure to global structured products, which blew up in the wake of the Lehman Brothers collapse in 2008, and was one of the first fund managers in Korea to introduce Global Investment Performance Standards.
“KB Asset Management was approached by many global players, including now defunct ones, offering exotic strategies and products in 2007 and 2008,” says Cho. “However, our commitment to fiduciary duties prevented us from jumping on the bandwagon, which proved to be a right decision in the wake of global collapse in 2008.”
The firm says it has been advocating the benefits of diverse investing for years. Last year it entered the final stages of a product-line overhaul, launching several niche and core funds to round out its offering and renaming others to fit in with its universal investment concept.
“We aim to adhere to this approach,” says Cho. “As the fund investment culture is constantly evolving, we strongly believe Korean fund investors will eventually realise the benefits of this style of [universal] investing.”
Korea’s fund industry has seen nearly $1.4 billion (excluding MMF) in redemptions since the beginning of the year, but KB Asset Management says it has seen stable inflows of $720 million during this period.