[Asia Economy Reporter Ji Yeon-jin] A product that links the management fee of public offering funds to performance will be introduced.
The Financial Services Commission announced on the 16th the legislative notice of the amendment to the Enforcement Decree and Enforcement Rules of the Capital Markets Act and the Financial Investment Business Regulations containing this content. This is a follow-up measure to the public offering fund competitiveness enhancement plan announced in January.
The FSC newly established a "performance-linked management fee" as a type of performance fee for public offering funds. It is a method in which the fund management performance of a quarter or half-year is symmetrically reflected to determine the management fee for the next period.
The range of fees is preset within ±50% to ±100% of the basic fee. In addition, seeding investment (investment of own assets) is legalized, and incentives will be given to additional seeding investments and performance fee funds.
The "administrative guidance on self-investment in public offering funds" is legalized, and asset managers with entrusted assets under 1 trillion won are allowed to pay seeding investments in installments over one year to reduce the burden on small-scale asset managers.
Public offering funds that have introduced performance fees and public offering funds in which the asset management company has invested more than 1% of its own capital as seeding investment will receive benefits such as extending the small-scale fund (funds under 5 billion won) assessment period from one year to two years, and allowing asset managers with a small-scale fund ratio exceeding 5% to newly register target funds. The resolution period for exceeding the diversification investment limit is extended from three months to six months.
Since incentives are introduced, the basic fee is limited to be set at 90% or less of general funds, or the management fee must fluctuate above a certain level according to management performance.
The FSC expects that investors and asset managers will share the fund's management performance, thereby strengthening responsible management.
Regulations on public offering fund management have also been revised. Public offering funds can now invest 100% in bond-type Exchange-Traded Funds (ETFs) that meet certain requirements. It is already possible to invest 100% in equity-type ETFs.
Investment targets for real estate and special asset fund of funds have been expanded to include public and private funds investing in Special Purpose Companies (SPCs) related to Social Overhead Capital (SOC) and private funds investing in real estate-related securities. This relaxes the regulation that only allowed public offering funds to invest in real estate-related SPCs and related securities.
Also, inactive funds (those set up over 10 years ago and with an average daily entrusted asset under 5 billion won in the last three years) can easily change investment strategies with only a resolution from the asset management company's board of directors.
Foreign currency money market funds (MMFs) investing in short-term foreign currency financial products such as short-term bonds and bills, with foreign currency subscriptions or redemption payments, will also be introduced. The most favorable class of funds for investors will be explained, and information provision related to liquidity risk and fund of funds will be strengthened.
For discretionary contracts using robo-advisors that have passed Koscom's testbed, regulations on performance advertising and non-face-to-face discretionary contracts will be eased, and the registration process for foreign funds will also be simplified.
The FSC plans to collect industry opinions until August 25 and complete the amendments within this year.
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