Net Capital Ratio
Korean asset management firms are expected to make inroads into overseas markets with greater ease as the Financial Services Commission has opted to repeal the net capital ratio (NCR) regulations on them.
The asset management industry insisted on the abolishment of the restriction over and over, mentioning that the NCR regulations were too excessive for asset management firms, in view of the absence of systemic risks in them, unlike in securities companies. They also claimed that their overseas market penetration was restricted due to the NCR prohibition by the deduction of investment shares from the net capital, and that overseas investment would be boosted once the regulations are repealed because the firms do not have to maintain capital to meet the minimum NCR then.
Korea’s fund market is approximately 345 trillion won (US$339 billion) in working capital, which is the 12th or 13th largest in the world. Although the total amount is quite large, the rankings of individual asset management companies are rather low.
At present, Mirae Asset Global Investments, Samsung Asset Management and Korea Investment Management are running overseas subsidiaries in Hong Kong. Mirae Asset has a subsidiary in Brazil, too. Hanwha Asset Management is planning to set up a joint company in China.
The deregulation regarding the NCR determined at this time is expected to result in M&A between such firms and the foundation of large asset management companies comparable to those in advanced economies.