[Asia Exclusive] Overcoming the COVID Crisis: Overseas Investment as Both the Challenge and the Solution

Cho Hong-rae, CEO of Korea Investment Trust Management

Overseas Funds Achieve 21.3% Annual Growth Over 10 Years

Enables Diversified Investment by Reading Global Trends

Increasing Proportion and Interest in Fund of Funds

Facilitates Investment Decisions and Risk Management

Domestic-Only Vietnam Investment ETF and More

Actively Developing Overseas Index Products as a ‘Niche Strategy’

The financial investment industry faced a challenging year due to the impact of the novel coronavirus disease (COVID-19) and the Lime and Optimus scandals. Although individual investors, known as 'Donghak Ants,' emerged as new investment players, leading securities firms to unexpectedly strong performances, the revenue structure relying on the increase of individual investors still raises concerns as it could cause greater volatility in the future.

The asset management industry faced even tougher conditions. The fund redemption suspension issue that began with Lime Asset Management last year spread to Optimus Asset Management, causing investor trust in the indirect investment market to plummet. The sharp fluctuations in asset values due to COVID-19 and consecutive fund redemption suspensions caused by unethical misconduct by some asset management firms were enough to instill fear of investor neglect among fund market participants.

Hongrae Cho, CEO of Korea Investment Management

Cho Hong-rae, CEO of Korea Investment Trust Management, takes this reality seriously. In an interview with Asia Economy on the 1st, Cho said, "Restoring investor trust in the fund market is urgent, but it will take a long time for the negative impacts related to private equity funds to diminish," adding, "Overcoming these difficulties is not the task of a single company but a challenge for the entire industry and the capital market as a whole."

He continued, "Challenges such as competition within the industry have always existed, and I believe this will lead to healthy competition that strengthens the company’s fundamentals and improves investor returns," and stated, "Next year, we will continue our relentless efforts to safely manage client assets and ensure the company’s sustainable growth."

Amid the series of challenges faced by the asset management industry, Cho sees 'overseas investment' as a breakthrough. Although overseas investment was the most affected sector due to difficulties in product supply caused by COVID-19, considering growth potential, the solution also lies in overseas investment. According to the Korea Financial Investment Association, overseas funds in the domestic fund market have shown a high average annual growth rate of 21.3% since 2010.

Cho emphasized 'diversification' as the key reason for focusing on overseas investment. Funds generally carry less risk than individual stocks, and the more diverse the investment targets, the better the performance tends to be. He stressed, "Through overseas investment, it is desirable for all market participants to read and invest in rapidly growing industries in the global market, not limited to the domestic market."

Among overseas investment funds, one product that continues to attract market interest is the fund of funds (FoF). Although overseas fund management by domestic managers is gradually increasing, it is realistically time-consuming for domestic asset managers to build investment infrastructure for all overseas assets. The proportion of fund of funds among overseas funds has risen from 10.8% in 2015 to 40.9% as of August this year, based on net asset value.

Cho explained, "Fund of funds makes investment decisions easier and is advantageous for risk management," adding, "When researching numerous stocks in overseas markets, it is practically reasonable to monitor several dozen well-performing asset managers or famous funds in each market." He emphasized, "Korea Investment Trust Management has the longest experience in overseas fund of funds management in Korea, accumulating know-how to supply products suited to the market."

Korea Investment Trust Management started its fund of funds business in 2003, mainly launching funds targeting institutional investors and high-net-worth individuals. The current scale of managed fund of funds is about 890 billion KRW, maintaining stable management with annual returns in the 4-5% range.

Cho does not prefer any specific country for overseas investment. Since there is investment demand in developed countries, emerging markets, and transition economies alike, effective investment targets can be achieved if preparations are well made. Korea Investment Trust Management’s overseas investment products are diversified across various countries rather than concentrated in specific ones for this reason. Among these, Vietnam holds a special place for him, as Korea Investment Trust Management was the first domestic asset manager to enter the market in 2006 and has maintained strong performance since.

He said, "It is natural for investors to be interested in Vietnam, one of the most stable and high-growth countries in the world," adding, "We take pride in leading the creation of such investment channels." He further noted, "We have long invested in local presence, hired local experts, shared a long-term management philosophy, and take pride in having a platform that invests indirectly in various assets."

In July, the company officially launched its Vietnam subsidiary in Ho Chi Minh City. The Ho Chi Minh office, which had mainly handled local research since its establishment in 2006, was converted into a corporation to strengthen business in the Asia region. Korea Investment Trust Management invests in Vietnam through funds such as the Korea Investment Vietnam Growth Fund, the Korea Investment China Vietnam Fund, the Korea Investment Vietnam IPO Fund, and the Korea Investment Vietnam Equity Mixed Fund, which is the largest Vietnam public offering fund in Korea.

His interest in diverse overseas investments extends to the Exchange-Traded Fund (ETF) market as well. The domestic ETF market is concentrated in certain products like leveraged and inverse ETFs, with leading companies holding high market shares. However, as the market continues to grow by leveraging advantages such as low fees, good liquidity, and asset allocation investment, it is not an option to just watch the leaders advance.

Cho adopted a niche strategy by actively developing and launching overseas index products without limiting to specific assets. Representative examples include 'KINDEX Vietnam VN30 (Synthetic),' the only ETF investing in the Vietnam market domestically, and 'KINDEX Singapore REIT,' which invests in the Singapore real estate market. In August and October, the company consecutively launched U.S. equity ETFs 'KINDEX U.S. S&P 500' and 'KINDEX U.S. Nasdaq 100,' and on the 25th of last month, it listed 'KINDEX Bloomberg Vietnam VN30 Futures Leverage (H),' the first domestic ETF to use a Bloomberg index.

He explained, "This is not simply a strategy to avoid competition with leading companies, but meaningful in that overseas markets offer more investment targets and opportunities than domestic ones, and we provide investors with accessible ways to approach those opportunities," adding, "The recently launched ETFs investing in the U.S. market and the Vietnam leverage ETF are products prepared based on such strategic judgment."

Cho cited 'fundamental reflection on work' as the most important factor to improve overall performance, including overseas investment, in the future. He pointed out that the root cause of consecutive private equity fund redemption suspensions is the 'loss of basic ethics,' and said, "Appropriate investment in personnel and IT is like building basic strength, so it must always be nurtured and improved, but more important is fundamental reflection such as 'Are we faithful to the basics?', 'Do we have an ethical sense of duty to fulfill trust obligations?', and 'Are we full of willingness to take on new challenges?'" He emphasized, "We will continue to make relentless efforts to confidently execute our role as managers of our clients’ precious assets."

Interview by: Cho Young-joo, Head of Capital Markets Department

Summary by: Koo Eun-mo, Reporter