NPS expresses dissatisfaction over Goldman Asset's exit from Korea

By Kim Jae-won

Was it a fair business decision or an opportunistic move?

U.S. banking giant Goldman Sachs’ recent decision to exit Korea’s asset management market has created a stir after the move has resulted in the unexpected consequence of angering Jun Kwang-woo, chairman of the National Pension Service (NPS), one of Goldman Sach’s biggest clients.

The nation’s pension agency, the world’s fourth-largest, said Monday that Jun canceled his luncheon meeting with high-ranking officials of Goldman Sachs earlier this month in New York.

According to NPS officials and industry sources, the cancellation came immediately after Jun heard the news regarding the global asset manager’s move to withdraw from the Korean market. They said the chairman was furious over the Wall Street company’s “unfaithful” behavior.

“Chairman Jun canceled the meeting with Goldman Sachs during his U.S. business trip. Instead, he had meetings with other business leaders,” said an NPS spokesman.

The company had 40 employees and six directors for its asset management business here as of June 30, according to data from its website. Sources said that only a few of them have managed to keep their jobs, moving to the firm’s asset management division in Singapore. It began operations after Goldman Sachs bought Macquarie IMM Asset Management in September 2007.

To resolve tensions between the two, a high-level Goldman Sachs executive will visit Seoul to see Jun on Wednesday.

Industry watchers say the meeting will be critical in dealing with the conflict between the two. Experts forecast both sides may compromise on the issue and will not make radical decisions, such as ending their business relationship, as the NPS needs the U.S. company’s skills and know-how in managing assets in the global financial market.

Goldman Sachs declined to comment on the issue.

However, an industry source familiar with foreign investment bankers in Seoul said that the U.S. investment bank had no choice but to close its asset management business here due to ballooning losses.

“The asset management firm affiliated with Goldman Sachs has posted losses for the last five years. The company injected fresh money during that time but it failed to recover,” said the source on condition of anonymity.

According to a regulatory filing of Goldman Sachs Asset Management Korea, the company posted a net loss of 1.8 billion won ($1.7 million) from April to September, following a net loss of 7.3 billion won for the fiscal year ending in March.

Some say that the conflict between the Korean pension agency and U.S. investment bank illustrates the former’s increased negotiating power. The NPS manages more than 300 trillion won of assets.

Overseas assets of the pension fund trusted to investment institutions, including Goldman Sachs, are on the rise. They marked 33.7 trillion won for the first eight months of this year from 25.8 trillion won at the end of 2011.

The size has increased drastically over the last few years. It marked 8.9 trillion won in 2008, and doubled to 17.7 trillion won in 2009 before rising to 23.9 trillion won in 2010.

Goldman Sachs Asset Management said earlier this month that it reached the decision to close its local onshore presence in Korea. The company said it will no longer offer Korean equity or fixed income strategies to domestic clients.

Korea’s asset management industry has been hit hard by the global financial crisis and the economic downturn. Combined operating income at 82 asset management companies in the country fell 21 percent in the second quarter from a year ago as declining asset values hampered fee income, according to data from the Financial Supervisory Service.

Sources say that other foreign investment banks, such as Deutsche Bank, Fidelity Investments and ING Group, are also mulling selling some of their Korean asset management businesses. Local asset management companies, including market leaders Mirae Asset and Samsung, are also suffering from losses.