Shinhan BNP funds JV taking Korea story global

The asset-management joint venture between Shinhan Bank and BNP Paribas Investment Partners joins a trend of Korean fund houses expanding abroad.

Shinhan BNP Paribas Asset Management, a joint venture between Shinhan Bank and BNP Paribas Investment Partners, is marketing the merits of global investment into Korea.

Patrick Mange, deputy CEO of the Seoul-based JV, is actively promoting the market opportunity both within the BNP Paribas Investment Partners organisation, as well as with BNP Paribas's overseas branches, notably in Japan.

This is part of a broader trend as Korea-based asset managers look to expand their activities worldwide. Mirae Asset is the most high-profile example, given its slate of marketing and investment offices around the globe, but Samsung Investments is also building a franchise in Asia. Securities firms are also building offshore platforms for alternative investments.

To this end, Shinhan BNP is mulling the idea of opening rep offices in overseas locations, says Mange.

The JV is a substantial player in Korea. With about $30 billion of assets under management, it is the third largest in the funds industry, behind Samsung Investments and Mirae Asset. Shinhan Bank is its primary distributor, and it has a commanding presence among wealthy Seoulites.

"I'm promoting Korea," Mange says. "Initially our joint venture was about bringing global product and ideas local, but now we are also going from local to global."

He believes the country is underappreciated despite its economic heft, large market capitalisation, and competitive companies. Part of the problem is that Korean industry is often at a global standard, but its financial markets share problems common to emerging markets. The currency is not fully convertible, and there are restrictions on block trades, omnibus accounts and full availability of information.

However the opportunity in the stock market is attractive because Korean companies are growing in tandem with deepening trade links to the rest of Asia, says Mange.

He cites four reasons for an enduring equity risk premium on the Korean market. One factor is a lack of awareness in the international investment community about Korea, and Mange's travels are designed to help ease this.

Second is the market's traditional volatility. Mange believes this is going to gradually be reduced, as Korean industry becomes more interdependent on markets such as China and India. Asia now accounts for the majority of Korean trade, and the entire region is going through a structural shift towards maturity.

As markets such as China move up the value chain, it forces Korean companies to innovate and go higher tech, in order to remain profitable. That's why today Korea can sell advanced nuclear technology to foreign governments, and its engineers can play a leading role in infrastructure projects, says Mange.

The third reason for an equity risk premium is political. This isn't going to change, unfortunately, given the intractable problems with North Korea.

The fourth is corporate governance and the enduring influence of the chaebols. Mange says this is solvable but progress will be limited. Unlike issues around awareness or volatility, it's not a problem that automatically solves itself. However, he notes that corporate governance has improved. Moreover, big companies are increasingly willing to hire foreigners, not just in areas such as design and engineering, but in human resources.

Ultimately, Mange believes this risk premium won't go away until financial liberalisation gives more power to minority shareholders and Korea is admitted to the MSCI indices for developed countries.