By Lee Hyo-sik
Staff Reporter
A majority of small-and medium-sized state funds received failing grades last year for the management of their assets, mostly acquired by taxpayers' money, compared to their counterparts abroad. They were found to have lacked professional asset managers, transparent decision-making processes and risk management capability.
The Korea Fixed Income Research Institute (KFIRI), which studied 40 small-and mid-sized government-financed funds last year, found that almost half of them did not run an asset management committee or other such decision-making body. Even when they did, two out of three did not hire professional managers, meaning their assets were overseen by inexperienced staff.
``Small state funds here are mostly unprofitable and lag far behind large-scale domestic pension funds and their counterparts overseas. They should improve governance structure, asset management efficiency and risk management, and increase outsourcing for management,'' the institute said.
In 2007, they generated an average of 5.5 percent returns on assets in 2007, lower than the National Pension Service's 7.22 percent.
First, the funds should set up a functioning management committee that decides how resources are managed, boosting management transparency and efficiency.
``Many small state funds do not have a formal decision-making body. Even if they do, there are no professional managers who can operate assets for greater profits while minimizing risks. Without them, money management tends to become risk averse, mostly investing in bonds and other fixed income products, realizing low returns,'' the institute said.
Additionally, it found that all 40 small- and medium-sized funds did not have a separate division monitoring and assessing asset management. ``When management and evaluation functions are not separate, it's difficult to correctly rate performance. It is a must to split them into two,'' the KFIRI said.
It added around 35 percent of small funds outsourced asset management to outside entities last year, suggesting they should entrust assets to professionals.
``Without professional knowledge and skills, state funds will likely put money into safer assets, including bonds, and generate relatively low returns. But by outsourcing it to professionals, they can realize larger profits through management expertise and risk control,'' the institute said.
As part of an in-house approach, it suggested that funds beef up their own asset management capability or put money into a joint pool for more efficient asset management.