Vanguard Group, America's number-two sized mutual fund company with $560 billion in assets, has made a foray into the Korean institutional marketplace by signing a memorandum of understanding with local Yurie Asset Management to distribute Vanguard's range of global index funds.
The tie-up will target high-net worth individuals as well as institutions.
"The $700 billion Korean institutional market is pretty substantial, and is starting to move toward offshore investment but rather gingerly," says Jon Robinson, Vanguard Investments' managing director in Singapore. "There is also some acceptance locally of index investing for Korea domestic securities."
Yurie has specialized in indexing and quant strategies for Korean institutions since its founding in 1998 by Korean-American Kim Jeong-Hoon, who owns 84% of the company. Unlike its domestic rivals, it is not affiliated with any big financial group.
Kim struck gold selling an optical networking company he started to Lucent Technologies. He is also an owner of the Washington Wizards basketball team, which narrowly missed reaching the NBA finals this year despite being led by Michael Jordan.
For Yurie, the MOU will allow it to offer clients a full range of index products, both onshore and off, notes Stephanus Suh, Yurie's CEO. In turn it will give Vanguard access to a potentially lucrative market, but one that tends to pose massive cultural and linguistic challenges to foreign companies. Both firms say they share common values.
The deal also allows both firms to take on their respective rivals. Last year, for example, bigger investment trust managers such as Samsung and LG launched exchange-traded funds, backed by BGI and State Street Global Advisors, respectively. Although at this stage the Vanguard-Yurie MOU doesn't envisage launching products together, cooperation should boost their appeal for institutional mandates.
Vanguard is not paying Yurie a commission or fee, Robinson says. Instead, Yurie will levy a separate charge on Vanguard index funds it sells. Robinson says the value proposition for the low-cost index products will remain intact, as the respective charges are still much lower than those for an active mutual fund.
Although the MOU is not exclusive, the intention is both parties will not seek other primary partners, Robinson adds. "As an organization [Vanguard] dance with the girl we bring," he says.
Vanguard incorporated in Singapore in April, and had only hired ex-Watson Wyatt executive Robinson earlier this year.