Market opening to hit local fund managers
Korea Times
Market Opening to Hit Local Fund Managers
By Lee Hyo-sik, Staff Reporter
29 August 2006
Local asset management companies are closely monitoring the ongoing free trade agreement (FTA) talks between South Korea and the United States, wary of the latter’s demand for easier access to the domestic fund market.
According to the Ministry of Finance and Economy yesterday, the U.S. has reportedly asked Korea to allow the so-called “cross border deal” for various investment funds. It would enable U.S. asset management firms to directly market their funds to Korean retail investors without establishing a local entity that operates the funds.
Domestic fund managers are worried that such a provision could deal a blow to their businesses as more retail investors may purchase equity and other types of funds managed by U.S. firms, shunning ones managed by local companies.
They say the cross border deal should not be allowed between the two countries, arguing that foreign players have already been permitted to enter and operate in the local market like domestic fund managers.
Under current laws, foreign asset management firms are required to set up either a local subsidiary or a joint venture with a domestic company, which operates investment funds sold to local investors. They also need to receive approval from the Financial Supervisory Commission (FSC) for funds that they plan to market here.
“Allowing the cross border deal is expected to be at the center of the ongoing FTA negations regarding the financial sector. If allowed, it is likely to have negative effects on local asset management companies,” said Yoon Taisoon, president of the Asset Management Association of Korea.
Yoon said U.S. fund managers would market not only equitytype investment funds but also a range of funds investing in diverse commodities and derivatives, adding more local retail investors will purchase U.S. funds seeking higher profits.
“But in return for high returns, the cross border deal could expose domestic investors to higher risks as local financial authorities will likely face difficulties supervising how fund managers in the U.S. operate the funds directly sold to Korean investors,” he said.
However, some domestic asset management companies do not expect the cross border deal to have negative effects on their businesses, saying U.S. asset managers would have difficulty directly marketing their products here without a fund management operation here.
“I think its impact on the local asset management market will be limited because without a significant local presence and extensive knowledge of the local market, U.S. fund firms will have a hard time marketing their products,” said Lee Ji-hyung, CEO of Macquarie-IMM Investment Management.
