Real Estate Funds, Private Equity Funds Lead Growth
The domestic asset management market topped 2,010 trillion won (US$1.72 trillion) in terms of assets entrusted by customers at the end of last year, up 9.1 percent from a year earlier, according to the Financial Supervisory Service (FSS) on May 1.
The asset management market has grown by more than 50 percent after the government eased regulations on private funds in October 2015. The rapid growth was led by private equity funds and alternative investments. The market expanded by 695 trillion won (US$595.54 billion), or 52.9 percent, from the end of 2014, with funds gaining 174 trillion won (US$149.10 billion). Out of the 174 trillion won (US$149.10 billion), 160 trillion won (US$137.10 billion) came from private funds and 14 trillion won (US$12 billion) from public offering funds. The ratio of private funds to public offering funds was 4.6:5.4 at the end of 2014 but it has changed to 6:4 now.
By type of assets, alternative investment assets, such as real estate and special assets, showed a rapid rise. The assets of real estate funds increased from 30 trillion won (US$25.71 billion) in 2014 to 76 trillion won (US$65.12 billion) at the end of last year and the ratio also rose from 7.9 percent to 13.7 percent. Special asset funds also grew from 32 trillion won (US$27.42 billion) to 71 trillion won (US$60.84 billion) during the period and the ratio went up from 8.5 percent to 12.9 percent. The combined amount of the two types of assets reaches 26.6 percent. In short, one fourth of the total funds is alternative investment assets.
investment also surged. Overseas investment funds amounted to 149.50 trillion won (US$128.11 billion) at the end of last year, up 86.80 trillion won (US$74.38 billion), or 138.4 percent, from four years ago. In particular, the ratio of equity-type overseas funds decreased from 60 percent to 38 percent, while that of alternative investments increased from 25 percent to 45 percent. In a nutshell, half of overseas investments is alternative investment.
By type of investors, the amount of individual investments in private funds skyrocketed. The figure more than doubled from 10 trillion won (US$8.57 billion) in 2014 to 23 trillion won (US$19.71 billion) at the end of last year. On the other hand, individual investments in public offering funds fell by 10 trillion won (US$8.57 billion) from 94 trillion won (US$80.55 billion) to 84 trillion won (US$71.98 billion). The drop in public offering funds flowed into private funds.
In addition, the amount of entrusted assets to investment service companies rose by 194 trillion won (US$166.24 billion) from 392 trillion won (US$335.90 billion) at the end of 2014 to 586 trillion won (US$502.14 billion) at the end of last year. However, financial companies took up 64 percent, or 376 trillion won (US$322.19 billion), of the investment service market, followed by pension fund associations with 21.6 percent, or 127 trillion won (US$108.83 billion), ordinary corporations with 10 percent, or 59 trillion won (US$50.56 billion) and individuals with 4.5 percent, or 26.30 trillion won (US$22.54 billion). The ratio is similar with that in 2014.
Investment trusts increased by 327 trillion won (US$280.21 billion), or 59.9 percent, from 546 trillion won (US$467.87 billion) at the end of 2014 to 873 trillion won (US$748.07 billion) at the end of 2018. The trusts with banks grew by 174 trillion won (US$149.10 billion), leading to the increase in the total investment trusts. Trusts with securities firms stood at 53 trillion won (US$45.42 billion) and insurance companies 19 trillion won (US$16.28 billion).
Real estate trusts had a sharp growth among property trusts. The real estate trusts grew by 98 trillion won (US$83.98 billion) to 251 trillion won (US$215.08 billion), while the monetary claim trusts rose by 80 trillion won (US$68.55 billion) to 180 trillion won (US$154.24 billion).
The FSS said, “The size of the asset management market has grown to 113 percent of the nation’s gross domestic product (GDP). However, risks are mounting as a whole due to the recent changes in the market structure and asset portfolio.” As the rate of traditional asset return, such as stock and bond, stays in doldrums, the ratio of high risk assets, including private fund and real estate, has increased. The FSS said, “We will check on potential risk factors that adversely affect the fund soundness, including real estate funds.”