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Investment Funds Leave Billions Unused

Posted February. 09, 2006 04:30,   


According to an Asset Management Association of Korea (AMAK) announcement on Wednesday, there are currently 99 stock funds and 319 mixed funds with a total trust amount of less than one billion won.

Stock funds are funds in which 60 percent or more of the trust is invested in stocks. Mixed funds have a 30-60 percent of their trust invested in stocks.

These small-scale funds have a total fund worth of 137.8 billion won, with 32.7 billion won in stock funds and 105.1 billion won in mixed funds.

Experts point out that it is difficult to manage a stock fund with a trust of less than one billion won, and that they cannot function normally with less then 500 million won.

Mixed funds can only invest up to 60 percent of its trust amount in stocks, which means that they need a larger volume of trust money than stock funds.

The average trust amount of 418 small-scale funds stands at a mere 330.11 million won for stock funds and 329.57 million won for mixed funds.

There are 36 micro funds that are practically useless as a fund with trusts of less than 10 million won, and among them, as many as 130 funds have trusts of less than 100 million won. There are even funds with trusts of only 1,577 won, 5,000 won, and 10,000 won.

A fund with a trust of 100 million won cannot even buy 10 Lotte Chilsung shares that cost over one million won a share. This is because the rules prohibit a fund from investing 10 percent or more of its entire asset in a single stock. With a trust of 10 million won, a fund cannot buy a single share of Lotte Chilsung.

Many of these small-scale funds are not managed properly but simply neglected, according to this paper’s findings.

One investment trust company confessed, “We have practically given up on managing funds with trusts of less than 300 million won.” Other asset managers agreed saying, “Funds with 500 million won or more are manageable but those of lesser scales are not being managed.”

These funds do not even inform clients on asset management details such as yields.

According to this paper’s findings, most asset managers do not file management reports on small-scale funds. Instead, they send their clients forged reports after fixing some numbers and changing fund names from management reports of other large-scale funds.

Chairman Woo Jae-ryong of Korea Fund Research said, “Asset managers are committing a moral hazard that is almost a crime when they do not manage normally the valuable money entrusted by their clients.”

Wan-Bae Lee roryrery@donga.com