VIP Asset’s new mutual fund to forgo operating fees if it posts losses

VIP Asset Management Co., a leading South Korean asset manager, said on Friday it is launching a new mutual fund, and its managers won’t take operating fees unless it makes gains.

The fund, VIP Korea Value Investment, is absolutely performance-based, meaning its fund managers will forgo management fees if it incurs losses.

The company said the investment vehicle is the first such public offering fund launched in Korea. Absolute return-linked funds have only been available in private equity funds.

A mutual fund, or public offering fund, is an investment vehicle that pools money from at least 50 investors to purchase securities.

VIP Asset said it will launch the financial product on April 3.

Four fund managers, including co-founders JC Choi and Peter Kim, known as value investors, will be in charge of the new fund.

The fund's management fees are determined by its average rate of return over the previous year.

If there’s a loss, investors won’t be asked to pay the usual management fees until the loss is recovered. If there’s a profit, about 10% of the profit will go as performance compensation.

If the investment period is less than a year, a basic management fee of 0.8% will be charged regardless of the fund’s rate of return, it said.

“The new fund reflects our confidence in management capabilities as well as our determination to strengthen our responsibility for the products we well,” said a VIP Asset Management official.

GROWING POPULARITY OF ETFs

Until about 10 years ago, mutual funds were a major means for Koreans to increase their assets. In the mid-2000s, the mutual fund fever was led by Mirae Asset Global Investments Co.’s Insight Fund and Shinyoung Asset Management Co.’s Value Stock Fund.

However, such funds’ returns have since remained stagnant or long turned negative, making individual investors turn toward exchange-traded funds (ETFs) or direct investment by purchasing stocks and bonds in the market.

VIP Asset Management, which started operations in July 2003, has achieved high returns over the years by focusing on value investing.

As of the end of February, its flagship fund, VIP Private Equity Fund 1, has achieved a return of 1,120% over the past two decades – five times higher than Kospi’s 242% gain over the same period.

Write to Eui-Myung Park at uimyung@hankyung.com

In-Soo Nam edited this article.