Korean Fund Firms Gear up for Overseas Markets

Foreign asset management companies that mainly manage overseas securities have dramatically increased their market share in the Korean fund market this year amid the rising popularity of overseas funds.

In order to cope with the changes, local asset managers are seeking ways to advance into the international market. Those local companies, which are now set to make inroads into the international market, aim to manage overseas funds directly from the corresponding countries in an attempt to strengthen the competitiveness of their fund products.

The total amount of funds managed by investors of foreign asset management firms, whose foreign shareholding exceed 50 percent, jumped to 66.135 trillion won as of the end of last month from 40.207 trillion won at the end of January 2007. The market share has also been increased from 16.89 percent to 24.44 percent over the same period.

However, if you include the foreign asset management companies whose foreign shareholding is less than 50 percent, the total amount of funds managed by them rises to 113.236 trillion won as of the end of September 2007. In short, foreign companies control almost half of the Korean fund market.

“Because of the rising popularity of foreign funds, especially in China and South American countries, foreign companies, which mainly sell overseas funds, were able to expand their market share,” said Park Hyeon-cheol, fund analyst at Meritz Securities Co.

An increasing number of major international asset management firms are entering the Korean market.

JP Morgan Chase & Co. begun their operations in Korea targeting local investors in July and ING Investment Management Co. merged with Land Mark Asset Management Co. on October 1 to up its ante for the fund market. Goldman Sachs and UBS also entered the Korean market this year by taking over Macquarie Investment Management Co. and Daehan Investment Trust Management Co., respectively.

In order to counter this trend, local asset managers have been accelerating entry into foreign markets.

Samsung Investment Trust Management Co. recently decided to establish a foreign branch in Hong Kong in December. The company plans to launch a fund product that offers its clients to invest in the Chinese stock market early next year by using the Hong Kong branch as its strategic foothold.

Korea Investment Trust Management Co. opened an office in Ho Chi Minh, Vietnam, in September 2006 and Hong Kong Capital Management Headquarters in July 2007. “We are considering changing the office in Vietnam and Hong Kong Capital Management Headquarters to local subsidiaries once the Financial Holding Companies Act, which prohibits the establishment of grand child companies, is revised,” an official of the company said.

Dongyang Investment Trust Management Co. is awaiting the approval for the establishment of a local office from the Vietnamese authorities. Both KTB Asset Management Co. and Midas Asset Co. have begun their operations in their Singapore branches.

Mirae Asset is known as one of the Korean asset management companies most actively engaged in overseas operations. The company, which has already advanced into the Singapore, India, Vietnam and the U.K., is now in the process of establishing a local office in Shanghai, China. “As of the end of this year, we will actively seek the expansion of overseas markets by selling Mirae Asset main fund products,” said Kim Jeong-min, a senior official of Mirae Asset.

“In reality, it is not easy for Korean asset management firms to enter overseas markets due to costs and difficulties in securing an outstanding workforce. However, it is a must for them to strengthen the competitiveness of their overseas funds,” analyst Park said.

swon@donga.com sukim@donga.com