A steep rise in assets, a move to diversify investment portfolios overseas and regulatory changes to benefit the money management industry could combine to make South Korea one of the hottest markets in Asia for investment managers.
“Investors in Korea now look for more efficient ways of (portfolio) diversification,” said Jaechil Kim, senior research fellow and head of the funds and pension department at Korea Capital Market Institute, Seoul. “They feel that traditional equity and bond-type (strategies) are not fully diversifiable to each other, so they're looking at other types” of investments, such as absolute return, commodity and real estate investment trust strategies, among others.
“Those pension assets will be major sources of money for asset managers (operating) in Korea,” Mr. Kim added.
Some of the nation's largest institutions already are planning to outsource more assets as they seek to diversify their portfolios overseas, said Yoohee Won, Seoul-based CEO at BNY Mellon Asset Management Korea Ltd.
Several sources estimate that Korea's investment management sector will increase at a faster rate than any country in Asia, except China, among the larger markets.
“The average annual growth rate of assets under management will be above 10% in the future” in South Korea, according to Mr. Kim.
Korea is still dominated by domestic managers, particularly those tied to larger financial services providers, said Jayne Bok, director of investment services for Korea at Towers Watson & Co., Seoul. Four of the top five managers are home grown, and one is a joint venture between BNP Paribas and Shinhan Financial Group, a Korean financial holding company. The top five are: Mirae Asset Global Investments Group; Samsung Asset Management Co.; Shinhan BNP Paribas Asset Management Co.; Korea Investment Trust Management; and KB Asset Management Co. Ltd., according to data from industry organization Korea Financial Investment Association, using publicly available information on assets under management. (Some segregated mandates might not be made public.)
However, global managers are winning mandates in overseas fixed income, equities and alternatives — areas that are expected to gain in asset inflows, said Patrick Mange, deputy CEO at Shinhan BNP Paribas in Seoul. For example, 23% of the company's 32 trillion won ($28.16 billion) in assets under management sourced from Korea are invested mostly in overseas equities. Alternatives also are grabbing institutional attention, with private equity and real estate dominating, although hedge funds are making some inroads.
South Korea “is one of the most interesting Asian markets with a reasonable size” in terms of investment assets, Mr. Mange said, “and the competition among managers is among the highest in the world. Our joint venture puts us in a good position to take advantage of this fast-growing and increasingly sophisticated market.”
Shinhan BNP ranks second behind Mirae for overseas equity managers in South Korea in terms of assets under management, according to the financial association. Other global managers in the top 10 for overseas equity include Schroder Investment Management in third place, Fidelity Investments in fourth, J.P. Morgan Asset Management in seventh and BlackRock Inc. in ninth.