Performance Fee Fund Without 'Performance'

Average Fund Size Set at 2.7 Billion Won... Decline into Small-Scale Funds

Trend of Performance Fee Fund Assets (Source: FnGuide)

[Asia Economy Reporter Minji Lee] Performance fee-based public funds (performance fee funds), which charge fees only based on the performance achieved, have been largely ignored by investors and have effectively become small-scale funds.

According to financial information provider FnGuide on the 12th, the average size of 14 performance fee funds set up domestically is 2.7 billion KRW. Only three funds have assets exceeding 5 billion KRW, indicating that most are operated on a small scale. This corresponds to small-scale funds that financial authorities require to be liquidated if their assets fall below 5 billion KRW within one year of establishment.

Among these, the assets of the funds established in 2017?‘DGB Ttokttok Small and Mid-Cap Performance Fee Securities Investment Trust,’ ‘Asset Plus Alpha Robo Global Income Performance Fee Securities Investment Trust,’ and ‘Mirae Asset Dividend and Income 30 Performance Fee Securities Investment Trust’?have fallen below 500 million KRW.

In the past year, only three funds have attracted new capital: ‘Truston Fair and Square Performance Fee Securities Investment Trust,’ ‘Mirae Asset Dividend and Income 30 Performance Fee Securities Investment Trust,’ and ‘Korea Investment EMP Global Asset Allocation Performance Fee Securities Investment Trust.’ These funds received 3.9 billion KRW, 48 million KRW, and 21 million KRW respectively over the year.

Although there are differences by fund type, the returns are relatively good. The asset allocation fund ‘Daishin Robo Advisor Asset Allocation Performance Fee Fund’ recorded a 5.58% return over the past year, significantly outperforming the overall average return of 1.86%. The ‘Samsung EMP Global Rotation Performance Fee Securities Investment Trust’ also posted a 4.8% return. The domestic equity fund ‘Asset Plus Alpha Robo Korea Growth Performance Fee Securities Investment Trust’ achieved a 5.47% return during the same period, higher than the domestic equity fund average return of 2.6%.

Performance fee funds charge fees to customers based on returns. At launch, management fees are set low, and additional fees are charged only on returns exceeding a benchmark upon redemption. This product was introduced by financial authorities in 2017 as part of measures to revitalize public funds, reflecting investors’ complaints about funds charging fees regularly even when not generating profits. While attractive to investors due to lower fees, many investors are unaware of the existence of such funds, leading to their neglect in the market.

The asset management industry is skeptical about introducing additional performance fees. They explain that if investors redeem before reaching target returns, it results in losses for the management company. Among asset management companies, only Mirae Asset Management, Daishin Asset Management, and KB Asset Management launched performance fee funds last year. A representative from an asset management company said, “Rather than spending costs to promote performance fee funds to investors, it is better to launch another fund that meets current investor demand.”

This content was produced with the assistance of AI translation services.