By Lee Hyo-sik
Goldman Sachs and other foreign asset managers are pulling out of Korea after failing to make profits in the increasingly competitive marketplace.
Industry watchers say non-Korean firms, who are relatively small in size with inadequate sales networks, have been waging an uphill battle against much larger home-grown rivals such as Samsung and Mirae. Unable to fight the tide, many foreign asset managers have finally decided to fold up their operations here.
The prolonged sluggish mutual fund market following the global financial crisis in late 2008 has further aggravated their bottom lines.
Goldman Sachs Asset Management, the Korean asset managing unit of the world’s largest investment bank, recently decided to close its doors in the first half of 2013.
The decision to leave Asia’s fourth largest economy is largely due to its worsening performance. In 2011, it posted an operating loss of 7.2 billion won ($6.5 million). Since the company entered the Korean market in October 2007 by taking over Macquarie-IMM Investment Management, it has failed to generate profits. In 2008, it lost 9.4 billion won in the aftermath of the international financial market turmoil sparked by the collapse of Lehman Brothers.
Goldman Sachs has injected capital into its asset management unit four times over the past five years in a bid to turn its business around, but to no avail. Currently, Goldman Sachs Asset Management has about 40 employees, some of whom will move to Goldman’s other asset management units in Hong Kong and Singapore. Some of them are also expected to work at Goldman Sachs Investment & Securities and other Goldman units in the country.
``I think it will take six to nine months for Goldman Sachs Asset Management to withdraw from Korea,’’ an industry official familiar with the matter, who declined to be named. ``Over the past five years, the asset manager has never made money because it spent too much on developing investment products for Korean investors. But it could not earn enough to make up for such costs due to low demand.’’
Corporate and retail investors who experienced the severe market crash following the global financial market meltdown in 2008 have become unwilling to return to the mutual fund market.
``Investors here became extremely risk averse over the past five years. Equity funds and other risky investment products have lost their attraction,’’ the official said.
He said Goldman Sachs simply cannot compete with Samsung, Mirae and other large local asset managers, armed with a nationwide sales network and a huge pool of analysts and fund managers.
The company is the world’s largest investment bank specializing in mergers and acquisitions. But its asset management business lags far behind Fidelity and other global asset managers. In Korea, Goldman Sachs Asset Management ranks 25th in terms of assets under management among 63 firms.
``Samsung and other large domestic asset managers have rushed to slash fees on equity and other investment products to attract investors amid the ongoing sluggish stock market. But Goldman cannot do the same,’’ the official said. ``This excessive competition has forced Goldman to withdraw from Korea. I don’t think it will be the last foreign asset managing firm that leaves.’’
Fidelity Asset Management is reportedly considering pulling out of the country after posting a dismal performance. Its Korean unit earned only 2.5 billion won last year, down sharply from 30.4 billion won in 2010. It has not been performing well either this year as a growing number of retail investors exited mutual funds due to the bearish stock market.
There have also been rumors that Deutsche and ING are poised to overhaul their Korean units or dispose of them.