Asset Management Firms' Q1 Net Profit Halved

Stock Market Decline Due to COVID-19 Impact

300 Companies, 52% Decrease Compared to Last Year
70% of Private Equity Firms Operating at a Loss

[Asia Economy Reporter Minji Lee] The net profit of asset management companies in the first quarter of this year was halved compared to a year ago due to the impact of the novel coronavirus disease (COVID-19). Seven out of ten private equity fund management companies recorded losses.

According to the '2020 Q1 Asset Management Company Business Performance' released by the Financial Supervisory Service on the 11th, the total net profit of 300 domestic asset management companies in the first quarter was 116.4 billion KRW, down 52.3% (127.5 billion KRW) from 243.9 billion KRW in the first quarter of last year, when the global stock market was recovering.

The significant decline in the net profit of asset management companies in the first quarter was due to the sharp drop in the stock market caused by the COVID-19 outbreak, which severely deteriorated profitability indicators. The return on equity (ROE), a profitability indicator known for asset management companies, fell 9.6 percentage points to 6.1% from 15.7% a year ago.

The securities investment loss from asset management companies' proprietary asset management in the first quarter was 115.3 billion KRW, a decrease of 162.9 billion KRW compared to the 47.6 billion KRW profit in the fourth quarter of last year. Fee income related to fund management and discretionary management was 706.2 billion KRW, down 4.4% from the previous quarter (738.9 billion KRW) and about 16% (99.6 billion KRW) compared to the first quarter of last year. Selling and administrative expenses also decreased by 20.6% (111.2 billion KRW) from the previous quarter (540.2 billion KRW) due to a significant reduction in year-end performance bonuses.

Among private equity fund managers, which recently saw remarkable capital inflows compared to public fund managers, 158 out of 225 companies (70.2%) recorded losses in the first quarter, indicating that most companies did not generate profits. Last year, 89 out of 217 private equity fund managers (41%) recorded losses.

The total assets under management of all asset management companies stood at 1,149.4 trillion KRW as of the end of March, an increase of 12.9 trillion KRW (1.1%) compared to the end of last year. During the same period, fund trust assets increased by 9.4 trillion KRW (1.4%) to 659 trillion KRW from 649.6 trillion KRW. Public funds recorded 240.9 trillion KRW, up 3.7 trillion KRW from the end of last year. Money Market Funds (MMF) increased by 13.7 trillion KRW, and derivative funds by 3.3 trillion KRW, but stock-type (-10.6 trillion KRW) and bond-type (-2.3 trillion KRW) funds saw a decrease in trust assets.

Private equity funds recorded 481.1 trillion KRW, up 5.7 trillion KRW from the end of last year. Significant capital inflows were seen in real estate funds (3.6 trillion KRW), and special asset funds investing in ships or aircraft also attracted an additional 2.4 trillion KRW.

The discretionary investment contract balance increased by 0.7% (3.5 trillion KRW) from the end of last year to 490.4 trillion KRW, driven by increases in bond-type (2.5 trillion KRW) and fund-of-funds (500 billion KRW) discretionary investments.

A Financial Supervisory Service official said, “Although trust assets increased, the net profit and profitability indicators of asset management companies deteriorated significantly due to the stock price decline caused by the COVID-19 outbreak. To prepare for market instability, we plan to inspect the financial status and profit and loss status of companies with weak profit bases and strengthen monitoring of potential risks for each company.”

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