Fund houses ease offshore investing for Koreans

Franklin Templeton eyes won-denominated offshore products, entering an area where local player Mirae has thrived.

Fund management firms are benefiting from Korean investors' move into regular savings plans (RSPs) based on domestic equities, the quick rise of variable annuities and a growing appetite for international exposure. Now some players are finding ways to serve this new demand.

Franklin Templeton is developing products to provide local fund investors with exposure to international asset classes, but in won-denominated products that will resemble domestic fund structures, says Mark Browning, Seoul-based regional head for Korea, Hong Kong and Taiwan.

So far all the international firms operating onshore in Korea offer either local product, or international-oriented funds based in jurisdictions such as Luxembourg and Dublin, which face regulatory restrictions and are denominated in foreign currencies.

"The market is dominated by big local distributors so our edge is providing international product," Browning says. "But we want to price and structure an offshore product more like a domestic one. [Luxembourg-registered] funds sell well through the international distributors like Citibank, HSBC and Standard Chartered. But we want to be able to appeal to domestic distributors as well."

Franklin Templeton is working on a balanced product that combines international assets with domestic bonds, and hopes to release this to Korea this year. The past 12 months has seen growing demand among Korean investors for sexy ideas like China, India or Eastern European equities.

The firm has a pioneering history in the Korean market, where it was the first to own 100% of a discretionary asset management license and was the first to market the idea of RSPs - a business that has subsequently been dominated by sharp local players such as Mirae Asset and Landmark.

Franklin Templeton could be the first foreign player to provide an international fund in local won terms and structure, but not the first overall, however. That distinction goes to Mirae Asset, which has seen its business rocket on the back of a strategy to become Korea's first home-grown fund manager to develop an in-house international expertise. It now has $12 billion of assets under management, of which $8 billion is invested in equities - by far the largest proportion of equities exposure for any Korean fund house.

Since late 2004, Mirae Asset has run an Asia ex-Japan equities strategy and an India equity fund out of Singapore, where it now has a nine-person team. The funds each have around $200 million under management. Last year the firm opened an investment office in Hong Kong and launched a China equities fund, which had raised $60 million in its first month of activity.

"We will expand this business, and we're even considering setting up our own companies in China and India, if it's feasible," says Lee "Ken" Keunmo, vice chairman at Mirae Asset.

"We're also looking to raise money from international investors," he adds, noting that Mirae is in the process of establishing an internationally domiciled, absolute-return Korean equities fund to be marketed to investors in Singapore and Hong Kong. This fund will be managed from either Singapore or Hong Kong, with senior portfolio managers seconded from Seoul. "We know how to invest in a developing market better than Western companies do," Lee boasts. "We know how to identify value stocks in an emerging market." Mirae Asset's flagship Korean equities fund, launched in 2001, has returned three times the performance of the Kospi Index since then, Lee says.

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