Fund Managers Told to Prepare for Run
By Lee Hyo-sik
Staff Reporter
Financial authorities are urging asset management companies to secure cash and other types of liquid assets in preparation for a possible massive withdrawal of equity funds investing in stocks abroad.
Most retail investors have refrained from redeeming overseas equity funds despite steep losses, but fears are growing that they could bail out of foreign stock markets en masse if share prices continue to head downward.
The Financial Supervisory Service said Monday that it is asking asset managers here to increase cash holdings and liquid assets in their portfolios to brace for the possible ``fund run, '' or massive withdrawal of money, by retail investors who put money into overseas equity funds.
The regulator is setting up a task force to strengthen the monitoring of overseas equity fund holders, as well as help asset managers manage investment risks and cope with potential liquidity shortage. It is also considering offering equity fund investors additional tax breaks and other incentives to encourage them to become long-term investors.
``There are no visible signs of a fund run yet, but now is the time for asset management firms to boost their liquidity and closely monitor the overseas equity fund market,'' an official said.
The financial watchdog held a meeting Thursday with executives of Mirae Asset Management and four others in the industry operating an array of funds investing in foreign stocks on the measures.
People investing in Chinese, Vietnamese and other Asian emerging market stocks through the indirect investment vehicle have suffered big losses over the 18 months amid the prolonged bearish market. Furthermore, equity funds investing in natural resource-rich Russian and Brazilian stock markets have recorded steep losses over the past month, weighed down by the falling prices of oil and other raw materials.
For instance, Mirae's Insight Fund, which invested more than 60 percent of its portfolio in Chinese stocks, have lost 32.3 percent of its investment since its inception in October last year. The fund had drawn more than four trillion won as investors had high expectations on the fame of Mirae and its group chairman Park Hyeon-joo.
Most investors have refrained from withdrawing money from the fund despite its dismal performance amid the bearish Chinese stock market. They have, however, begun taking money out of the fund in recent weeks, raising fears of a Mirae liquidity crunch when the massive fund withdrawal materializes. Last month alone, Insight Fun had 26.4 billion won withdrawn.
The country's first equity fund investing in shares listed on the Vietnamese market managed by Korea Investment Trust Management has lost 38 percent of its investment capital, or 224 billion won, since its inception in 2006. The fund had a paid-in capital of 590 billion won.