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Asset management

Templeton to pull out of Korean retail fund market

By Apr 27, 2021 (Gmt+09:00)

Korean stock market indices and dollar/won exchange rate at Apr. 26 domestic market close
Korean stock market indices and dollar/won exchange rate at Apr. 26 domestic market close
Franklin Templeton Investments' South Korean arm is in talks with a domestic asset management company to sell its retail operations, following BlackRock's exit from the country's retail fund market last month.

Franklin Templeton will likely join the ranks of global asset managers, including Macquarie and JPMorgan, which had significantly scaled back or sold their Korean retail fund business to domestic companies, over the past few years. 

Global asset managers have been taking a hit from retail investors' growing preference for direct investing in global stocks, instead of using an investment vehicle, alongside the increased popularity of low-fee exchange-traded funds for overseas stock markets.

"We are in negotiations to sell (the retail fund business), but the buyer is still not determined," said Jeon Yong-bae, chief executive of Franklin Templeton Investment Trust Management Co., on Apr. 26.

"As an independent foreign asset manager, it is becoming more and more difficult to achieve economies of scale for the retail fund business. That's why we are looking to sell our retail business to a domestic asset manager," he told Market Insight, the capital market news outlet of The Korea Economic Daily.

Jeon has been leading Franklin Templeton's South Korean unit since he was appointed as the company's first Korean CEO in 2010.

In competition with domestic rivals, global asset managers also are in a disadvantageous position. Domestic asset managers, many of which belong to the country's leading banking or financial services groups, use their banking and brokerage affiliates as sales channels.

In comparison, foreign asset managers, which also depend on the banks and brokerage firms of the financial services groups, find it challenging to meet their sales targets.

"When we propose to our headquarters that we sell a new global product, our headquarters ask us if we can raise over 50 billion won for the product in the first year of sales and then multi-hundred billion won within the next three years," said another asset management head in Seoul. "There is no way domestic banks and brokerage companies guarantee that amount of sales for unaffiliated companies like us."

Under the Korean regulations, the Korean units of foreign asset managers are not allowed to directly sell retail products to customers.

"From the standpoint of our headquarters, they may not need to run a Korean subsidiary. It could be more cost-effective and convenient for them to stop by Korea whenever needed," said another asset management head.

Late in 2020, Macquarie sold most of its Korean retail operations to a domestic private equity firm, excluding the infrastructure fund business, two years after JPMorgan sold its Korean retail fund business to Seoul-based Hanwha Asset Management Co.

LONG-GONE HEYDAY

Franklin Templeton Investment Trust Management was launched in 1997 as the country's first asset management joint venture. In 2000, Templeton bought up the remaining stake in the JV from then Ssangyong Securities Co. Its assets under management have shrunk to below 1 trillion won ($900 million) from the peak of 9.6 trillion won in 2011.

Between 2006 and 2015, Franklin posted double-digit annual growth in fund sales in Korea, attracting multi-hundred million dollars per fund. But its fund size has now contracted to tens of million dollars on average. An overseas investment fund with a net asset value of 10 billion-20 billion won is difficult to maintain given the fixed costs, including fund manager salaries, Jeon added.

Franklin Templeton's Jeon said the Korean unit will hand over the retail fund assets to a potential buyer in a manner that does not damage investors, noting that the retail operations sale would not mean its withdrawal from South Korea, nor discontinuing its institutional business.

The prospective Korean buyer is expected to secure talented managers and management know-how by taking over the US firm's domestic retail operations.

"Other foreign asset managers will also likely put their businesses up for sale to domestic rivals. That trend will continue for some time," said one of the asset management CEOs in Seoul.

On Apr. 15, Citigroup Chief Executive Jane Fraser announced its plan to pull out of South Korea and 12 other countries, mostly in Asia, saying the US banking giant does "not have the scale" it needs to compete in those countries.

Global asset managers that exited or scaled back South Korean business

Company Details
BlackRock Sold its retail fund business to DGB Asset Management for around 700 billion won in March 2021
Macquarie Investment Management Korea Co. Sold most of its retail business, excluding infrastructure funds, to a Korean private equity firm in late 2020
JPMorgan Asset Management Sold its retail fund business to Hanwha Asset Management in 2018
Goldman Sachs Asset Management Pulled out of Korea in 2012

(Amended to clarify Macquarie Investment's Korean arm continues to run infrastructure retail fund business, after selling most of retail operations to a Korean private equity firm in 2020.)

Write to Sang-eun Lucia Lee at selee@hankyung.com

Yeonhee Kim edited this article.

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