Download - Investment Management Association of

MEMBER’S REPORT
th
11 Asia Oceania Regional Meeting
1.
STATISTICAL POSITION (as of the end of 2005)
1.1
DATA AS OF DECEMBER 31, 2005 AND 2004
December 31, 2005
Number Net Assets under
of Funds
Management
(USD bil.)
December 31, 2004
Number
Net Assets under
of Funds
Management
(USD bil.)
No.
Type of Funds
1
Equity funds
696
25.7
499
8.2
2
Bond Funds
2,107
60.6
2,427
73.1
3
Hybrid Funds
2,708
39.9
2,752
34.1
4
Money Market
Funds
365
63.9
403
56.5
5
Others
1,451
18.7
473
7.7
7,327
198.8
6,554
179.6
Grand Total
Note:
US 1 dollar
≒
1,013.00 Korean won (KRW)
on Dec. 31, 2005
US 1 dollar
≒
1,035.10 Korean won (KRW)
on Dec. 31, 2004
1.2 Total number of Asset Management / Investment Management
companies managing mutual funds: 46 (2 specialized in SOC fund)
1. 3 Total assets under management:
As a percentage of total stock market capitalization:
Stock holdings of investment funds increased to 5.6% of total stock
market capitalization from 3.2% at the end of 2004.
* Bond holdings of investment funds remained at 11.5% of total listed
bonds, the same level as of the end of 2004.
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As a percentage of bank deposits:
End of Year
2000
2001
2002
2003
2004
2005
2.
Total
Financial
Sector
613.9
680,9
764.9
756.9
785.1
869.2
Funds
(A)
141.3
156.2
174.9
140.6
179.6
198.8
(Unit: USD billion )
Bank
Ratio
Deposits
(A/B)
(B)
381.3
37%
429.5
36%
485.9
36%
504.4
31%
530.8
34%
580.1
34%
DATA RELATING TO INVESTORS IN MUTUAL FUNDS/UNIT TRUSTS
2.1
Are any data available relating to the number of investors in the
mutual fund industry ? No.
2.2
If yes, please provide the data for the last two years and the
source of this data.
2.3
Are there data available separately for retail investors and
institutional investors?
No, but the number of accounts for investors is available.
2.4
If yes, please provide data separately for retail and institutional
investors for the last two years.
(Unit: USD bil.)
End of
Retail Investors
Institutional Investors
Total
Year
No. of
No. of accounts
Total
accounts of Amount
Amount
No. of
of Institutional
amount
Retail
accounts
Investors
Investors
2004
4,397,394
59.4
84,476
72.2
4,481,870
179.6
(33.1%)
(66.9%)
2005
8,992,620
72.2
128,558
126.6
9,121,178
198.8
(36.3%)
(63.7%)
* Parenthesis indicates the Proportion of total fund amount .
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2.5
Does the Association play any role in promoting retail investment
in the mutual fund industry? If so, please give details.
The Indirect Investment Asset Management Business Act prescribes
investor education as one of the roles of the Asset Management
Association of Korea (AMAK). Some examples are: uploading education
materials on the association’s web-site; dispatching professional
lecturers on request to entities such as government organizations,
schools, public institutions, etc.; and conducting seminars.
Also, AMAK has been conducting education focused on the sales staff
of distribution channels, which promotes the provision of suitable
fund sales to retail investors. In addition, AMAK exercises a selfregulatory function applied to its members and regulates the public
relations and advertising activities of the members, including the
prevention of false advertisement and excessive competition among
the members.
Meanwhile, AMAK has been in discussions with the regulatory body to
establish an education center, a separate legal entity from AMAK, in
order to put more effort into investor education.
3.
INTERNATIONAL INVESTMENT FUNDS
3.1
Are funds of other countries sold in the country ? Yes
3.2
Are your funds allowed to invest abroad ? Yes
3.3
If yes, please indicate number of funds, countries where allowed
to invest, and value of sales for the year ending December 2005.
Any developments in this area could be highlighted.
There are no restrictions on the countries where funds may invest.
(Unit: USD mil.)
End
year
of
2003
2004
2005
the
No. of
funds
63
182
210
Stocks
Bonds
Others
Total
254.3
700.8
1,147.6
607.4
770.4
663.4
522.4
2,546.5
3,099.4
1,384.1
4,017.7
4,910.4
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4.
LEGAL AND REGULATORY SITUATION
4.1
Any important developments in this area in the last two years
may be highlighted.
As of January 2004, the Indirect Investment Asset Management
Business Act (AMBA) replaced the Securities Investment Trust
Business Act (SITBA) enacted in 1968 for contractual type funds and
the Securities Investment Companies Act (SICA) enacted in 1998 for
corporate type funds.
The AMBA aims to regulate financial institutions by function; that is,
investment trusts, variable insurance accounts, and investment
advisory & discretionary management services all come under the
same act.
Also it aims to improve the competitiveness/performance of funds by
diversifying investment objects to areas such as real estate,
commodities, and OTC derivatives as well as securities, and by
expanding distribution channels such as direct sales and sales by
insurance companies as well as sales by securities companies and
banks.
The National Assembly approved on September 10, 2004 a bill that
allows the establishment of private equity funds (PEFs) in order to
channel more money into stock investments, corporate restructuring,
and social overhead capital spending. Previously, asset management
companies could create such funds in the form of a mutual fund only
for the purposes of a merger or acquisition (M&A). The law became
effective from December 5, 2004.
5.
DISTRIBUTION OF MUTUAL FUNDS
5.1
No
1
2
3
4
5
Statistical Position
(As of Dec. 2005)
No. of entities involved Percentage
36
65.0
19
32.7
6
2.3
to be allowed in 2006
Not allowed
-
Channel
Securities firms
Banks
Insurers, etc.
Direct sale by mutual funds
Individual agents/brokers/
intermediaries
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5.2
A brief commentary on developments in the area of distribution.
Banks and securities firms were the only permitted distributors for
investment funds until 2003. Banks have been allowed to distribute
since the end of December 1998, and their market share has
increased to 32.7% in 2005 from 26.7% in 2004. In particular, banks
have played a major role in the sales boom of installment saving funds,
especially from 2004, which has contributed greatly to the
inducement of retail investors into the fund market.
Also, insurers, which have been allowed to be distributors since from
2004, increased their market share to 1.9% in 2005.
6.
SYSTEMS AND PRACTICES IN MARKETING OF FUNDS
6.1
Do the Regulations specify any maximum rates for commission to
intermediaries/agents/brokers? If so, please indicate.
Yes, ceilings exist for Front-End Sales Load and Contingent Deferred
Sales Load (CDSL).
6.2
What is the maximum load allowed under Regulation and for what
purpose is it used?
According to the AMBA, the maximum load for Front-End Sales Load
is 5/100 of the subscription amount while that for CDSL is 5/100 of
the subscription amount or redemption amount. The ceiling is to
protect investors from excessive sales load (Private-placement funds
are excepted).
6.3
Are there any limits prescribed for sales and marketing expenses?
If so, please specify.
Yes, there is a sales fee, which is limited to the 5/100 of annual
average assets (Private-placement funds are excepted).
6.4
Is there a general or specific Regulation or Rule governing
intermediaries selling mutual fund schemes? If so, which agency
administers the Regulations ?
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Yes, a distributor shall set up a Code of Sales Conduct that prohibits
any act of soliciting that involves any guarantees of an investment
principal or other profits; any act of receiving a consideration for sales
from investors (Fees directly related to sales shall be excluded.); any
act to use the information acquired in connection with sales business
of a third party for the interest of the distributor concerned; any act of
fictitious indication or any other indication that may cause
misunderstanding on important matters; and so on.
The Ministry of Finance and Economy (MOFE) and Financial
Supervisory Commission (FSC) administer the related regulations.
6.4
Is there a qualifying examination for intermediaries? If so, which
agency conducts the exam and what are the details such as
syllabus, passing marks, nature of conducting the exam, etc.
Yes. The qualifying examination is conducted by AMAK from this year
and requires two things:
(1) completion of a training course of 30 hours related to the fund
industry including laws, fund management and analysis, and
sales ethics; and
(2) passing the qualifying examination.
Details such as the pass mark and syllabus have been discussed with
the MOFE. It is expected that qualifying exams will be conducted very
frequent this year to meet the expected high initial demand, but they
will be conducted less frequently from next year.
Previously, sales persons needed to take and complete a sales training
course of only 30 hours.
6.6
Are there any regulatory or industry rules relating to marketing
practices? Can mutual funds give gifts/prizes to distributors to
encourage distribution of their funds? Can such gifts/prizes be
given directly to investors? Are these covered by any regulation?
Based on the AMBA, in principle, asset managers are not allowed to
give gifts/prizes, although there is an exception that they can provide
gifts/prizes up to a value of KRW100,100 to distributors, according to
the “Code of Sales Conduct” of the AMAK, which is delegated by FSC.
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7.
CUT OFF TIMINGS FOR APPLICATION OF NAV
7.1
What is the system followed in respect of cut off timings?
A new regulation for cut off timing has been effective from June 6,
2005. Under this new regulation, the cut-off timing for funds that
invest more than 50% of their assets in stocks is 3:00 pm, and for
other funds it is 5:00 p.m.
7.2
Are there any rules/regulation or are they left to the individual
players?
The cut off time is regulated by the AMBA and has to be followed by
all players.
7.3
Do such cut off timings vary from Fund to Fund, or is it uniform
for all types of funds/classes of funds?
Please see above 7.1.
7.4
Are there any instances of late trading? Is late trading an issue
and if so what steps are being taken by the Regulator and the
industry association to curb such tendencies.
There have been no instances of late trading; however, since the
Korean regulators have been concerned about such a possibility, a
new regulation for cut-off timing was adopted at the end of 2004 (For
details, see above 7.1). Considering that distributors needed some
time to prepare for this system, the new regulation has been effective
from June 6, 2005.
7.5
8]
Any specific suggestion to prevent such practices.
PRICING ERRORS
8.1
Are there specific rules for reporting pricing errors to regulator?
No; however, in case of pricing errors, the acceptable error margin is
±3/1000 based on the AMBA. When an error is beyond this margin,
an asset management company shall immediately inform this to
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investors individually as well as through its own web-site and through
the web-sites of the AMAK and distributors.
8.2
Are there specific rules for compensating investors in the event
of pricing error?
No; however, there is a rule that an asset management company, a
trustee company, a custodian, a distributor, etc. shall, in case of
being liable to compensate any losses to indirect investors pursuant to
the AMBA, assume joint and several liability for loss compensation
where there exist any causes attributable to such companies.
9]
RISK MANAGEMENT SYSTEMS
9.1
Is there a risk management system prescribed by the Regulator
Yes
9.2
If yes, please give a brief description
Asset management companies should draw up a Code for Risk
Management and have personnel who take charge of such
responsibility.
The code shall include the management of trusted assets and the
acceptable risk level for each asset and transaction. Also, asset
management companies should report the code to the Financial
Supervisory Service (FSS).
9.3
If no, does the Industry Association formulate any systems
9.4
If yes- please give a brief description
9.5
If no, what is the system followed in the industry
9.6
Does
the
industry
follow
any
recovery/business continuity plan?
Yes
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system
of
disaster
9.7
If yes, please give brief details
When asset management companies have outsourced accounting to
transfer agents, the transfer agents shall be equipped with disaster
recovery facilities in accordance with the Presidential Decree.
10]
PERFORMANCE EVALUATION
10.1 Are there regulatory provisions relating to making and/or
publishing performance evaluation? If so, give details.
AMAK releases basic performance information about funds through its
web-site and weekly publication, according to the AMBA.
10.2 Are there third party research or other
performance evaluation? If so, give details.
agencies
doing
Yes, there were three fund valuation companies as of the end of 2005.
The requirements for the companies are: 1) Non-affiliated with asset
management companies or distributors, 2) Paid-in-capital: min.
KRW500 mil, and 3) employees: at least three (3) qualified evaluators
10.3 Are there Regulatory provisions relating to benchmark indices
against which the performance of a mutual fund is to be
assessed?
According to the regulations of the FSC, the prospectus shall show a
fund’s performance against a benchmark index such as the Korea
Composite Stock Price Index (KOSPI), a representative indicator in the
Korean market.
10.4 Does the Industry Association
evaluation activities?
undertake
any
performance
AMAK releases basic performance information about investment funds,
according to its own rule through its website and weekly publication.
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Criteria for funds that are rated by AMAK are below:
Type of Funds
Equity funds &
hybrid funds
Net assets
More than
KRW5 billion
Period since establishment
Bond funds
More than
KRW10 billion
More than 6 months
More than 6 months for long-term
funds
More than 3 months for shortterm funds
More than
More than 1 month
KRW10 billion
AMAK prescribes performance measures, and the funds are rated by
five categories based on performance;
MMFs
AAA
AA
A
BBB
BB
11]
:
:
:
:
:
top 20%
top 40% to top 20%
top 60% to top 40%
top 80% to top 60%
below top 80%
ROLE OF MUTUAL FUNDS OFFERING PENSION FUNDS
11.1
Do mutual funds
funds/schemes
offer
and
manage
their
own
pension
Yes, asset management companies manage private and corporate
pensions. In particular, the Corporate Pension system has been
introduced in Korea from December 2005. The market size of
corporate pensions is estimated to become about USD 95 billion
by 2010.
11.2 If yes, please provide details such as number of funds, nature of
pension funds, assets under management, fee structure etc.
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Private
Pensions
<Private & Corporate Pensions>
Characteristics of
- Max. KRW 3 million per quarter
Pension funds
- Min. 10 Years Maturity
- Tax Benefit
No. of funds and
- Stock Fund: 7
fund type
- Hybrid Fund: 72
- Bond Fund: 50
AUM
USD 1,155.5 million
Fee Structure (%)
Corporate
Pensions
Characteristics of
Pension funds
No. of funds and
fund type
Fee Structure (%)
Average Management fee: 0.85
Average Sales fee: 1.10
Average Trustee fee: 0.05
Average total fee: 1.99
- Not mandatory
- Tax benefit for 3 mil. won/year
- Stock Fund: 9
- Hybrid Fund: 66
- Bond Fund: 19
- Derivatives Fund: 2
Average Management fee: 0.25
Average Sales fee: 0.51
Average Trustee fee: 0.02
Average total fee: 0.78
11.3 Are there separate guidelines for private pension funds
No. However, based on the “Special Tax Exemption Control Law”,
private pensions allow subscribers to defer tax on investment amounts
and pay a lower tax rate at the time of withdrawal.
11.4 Is there a separate authority for regulating pension
No
11.5 If yes, please give details.
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12]
ROLE OF MUTUAL FUNDS IN MANAGING FUNDS FOR INSURANCE AND
PENSION COMPANIES
12.1 Do mutual funds manage funds for insurance companies
Yes
12.2 If yes, please provide some details
Insurance companies may use asset management companies and
investment advisory and discretionary management services as well as
their own management. However, mostly they entrust the
management to asset management companies.
12.3 Do mutual funds manage funds of pension companies
Yes
12.4 If yes, please provide some details
Pension investment in mutual funds is as below:
End of
year
2001
2002
2003
2004
2005
Stock
Fund
4.8
-
Hybrid
Fund
41.6
95.0
70.5
-
Bond
Fund
249.2
1,477.5
2,267.4
-
MMF
310.8
1,603.3
715.9
1,515.6
884.5
(Unit: USD million)
Others
Total
2,158.2
2,766.0
601.6
3,175.8
3,059.6
3,309.8
3,650.5
Note: 1) US 1 dollar ≒ KRW 1,200 for 2001, 2002, 2003 Year
US 1 dollar ≒ KRW1,035.10 for 2004
US 1 dollar ≒ KRW1,013.00 for 2005
2) The amount only includes some of the public pensions that are pooled for
management under government policy.
3) With the introduction of the AMBA in 2004, most of the public pension
pooling has been reclassified from securities funds to Fund of Funds.
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13]
ROLE OF ASSOCIATION
13.1 Does the association consist only of mutual funds/unit trusts or
any other entities? If so, please specify.
AMAK, established in 1996 and now based on the AMBA, is the only
association representing the fund industry in Korea. It consists of
asset manager members and associate members, which cover banks,
securities firms, transfer agents, etc.
From 2004, the range of members of AMAK has been expanded to
include insurance companies that conduct the business of variable
insurance products.
13.2 Are there different categories of members – If so please specify
and indicate their voting rights and other obligations
/responsibilities/fee structure?
The voting rights of members are based on the annual fee ratio, which
is normally 80% for asset management members and 20% for
affiliated members.
Classification
Fee ratio
Fee structure
Voting rights
Rights
Asset Management
Members
80%
Subscription fee:
(AMAK’s capital)/No. of
members
Annual fee:
Based on the market
share of AUM
Mainly based on the
annual fee ratio
Can be members of BOD
Affiliated Members
20%
Subscription fee: No
Annual fee: based on the
market share of sales
Based on the annual
fee ratio
Can be members of BOD
13.3 Briefly describe the role and functions of the Associations.
The purpose of AMAK is to protect the interests of investors and those
of its members by providing guidance for the sound development of
the fund management industry. Details are below.
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Classification
Role as Legal
Entity
Role as
SelfRegulatory
Organization
Contents
1. Maintain order & transparency among members in
relation to the AMBA.
- Disclosure of management performance reports
among members
- Enactment & approval of a standard trust deed
- Registration of fund managers and notification of
compliance officers
2. Investor Protection Program
- Research on asset management industry &
system
3. Investor education
1. Review incorrect and/or false data such as fund
management reports that are submitted to AMAK
pursuant to the Articles of the Association
2. Review & approve advertising materials
3. Supervise & monitor the distribution of funds
4. Manage & support Compliance Officer Committees &
Self- Regulatory Committees
13.4 What is the funding pattern, system of contribution.
Please refer to above 13.2.
13.5 Is there any financial support provided by Regulator/Government.
If yes, please specify
No.
13.6 Is the Association officially recognized as a self regulatory
organization (SRO) by the Regulator? If yes, please specify the
responsibilities, role and activities
Yes, see above 13.3
13.7 If not, what is your view on the association becoming an SRO. Is
it
necessary,
effective
or
not.
Please
give
your
observations/comments.
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13.8 What more could the association do?
With the adoption of the AMBA, AMAK’s members now include almost
all financial institutions. With the help of the expansion of members,
the role and responsibility of AMAK in the Korean financial market
has been expanding to include encouraging sound and fair market
practices and enhancing market transparency.
14]
BUILDING INVESTOR CONFIDENCE IN FUND INDUSTRY
14.1 Does the Regulator play any role in building investor confidence?
If yes, please describe in brief.
Yes, the financial watchdog supervises financial market participants
including asset managers and monitors their market practices such
as fund sales and disclosure.
14.2 What does the Association do in this area? Please specify
AMAK has strived to improve investor education by dispatching
professional personnel to workplaces. In addition, AMAK has been
conducting education for distributors. Also, it exercises a selfregulatory function applied to its members and regulates the public
relations and advertising activities of the members, including the
prevention of false advertisement and excessive competition among
the members.
14.3 What do the members of the Association do? Please specify
The members cooperate with and participate in various activities of
AMAK and the efforts of the Korean government in order to regain
investor confidence, for example by providing speakers for seminars
related to investor education and so on.
14.4 What are the suggestions in this regard?
AMAK believes that continued effort and the determination of market
participants for investor confidence are one of the important factors.
Also, sooner is always the best way.
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15.
ANY OTHER INFORMATION
AMAK has been in discussions with the regulatory body to establish
an education center, a separate legal entity from AMAK, in order to
put more effort into investor education. Under this project, AMAK is
going to utilize the “Investment Stability Fund” established in 1998 for
the stability of the asset management industry. Since its primary
purpose had been achieved, in 2003 it added investor education as
one of its goals. The assets of the Fund totalled USD26.9 million as of
the end of March 2005.
The background for the education center is:
First, asset management is becoming more important among Korean
people since Korea is considered as one of the most rapidly aging
societies among OECD nations.
Second, the Korean government selected the asset management
industry as the most crucial industry in its pursuit of developing
Korea as a financial hub in North-east Asia. As a consequence, the
government established the Korea Investment Corporation (KIC) in
July 2005 for the purpose of managing free cash being generated from
the public sector such as foreign reserves, public funds, etc.
Third, with the popularity of Regular Savings Funds among retail
investors and the introduction of Corporate Pension Plans, investor
education is becoming even more important.
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