A September easing of regulatory limits on South Korean target-date fund equity allocations to 80% should accelerate the growth of that nascent $1.2 billion business segment, industry veterans say.
But the next regulatory shoe money managers are hoping will drop — making target-date funds the default option for corporate defined contribution plans in South Korea — could have a far greater impact, establishing South Korea as the first Asia-Pacific beachhead for a product that has dominated U.S. 401(k) inflows since winning default option status in the U.S. more than a decade ago.
"It's a story that we see developing across certain markets in Asia" — first in South Korea but hopefully in China and Taiwan as well, said Thomas Poullaouec, Hong Kong-based head of multiasset solutions, Asia-Pacific, with U.S. target-date fund heavyweight T. Rowe Price Group Inc.
T. Rowe Price teamed up with Seoul-based Korea Investment Management Co., one of seven joint TDF efforts forged by local money managers with veteran U.S. and European target-date fund managers since 2015.
Mirae Asset Management, one of South Korea's biggest money managers, is the only competitor among eight providers of target-date offerings to go it alone.
At $1.2 billion, target-date fund totals only account for a tiny fraction of South Korean retirement assets — in corporate defined benefit, corporate defined contribution and individual retirement savings vehicles — of roughly $170 billion at the end of 2017.
But with the bulk of those assets in guaranteed insurance products, offering tepid annual yields of less than 2%, money managers see reasons to be optimistic about potential growth.