6 Trillion Won Plummeted in One Year... Private Equity Funds Being Ignored

Investor Distrust in Poor Performance Accidents
Woori Bank Shows the Largest Decline

[Asia Economy Reporter Jo Gang-wook] The balance of private equity fund sales by commercial banks has plummeted by a staggering 6 trillion won compared to a year ago. This is attributed to growing investor distrust following a series of failures, including last year's large-scale principal losses from overseas interest rate-linked derivative-linked funds (DLF), the Lime Asset Management shock resulting in a redemption suspension of about 1.65 trillion won, and the Optimus Asset Management redemption suspension. Furthermore, with financial authorities announcing a comprehensive investigation, it is expected that banks' private equity fund sales will contract even further.

According to the financial sector and the Korea Financial Investment Association as of the end of May this year, the balance of private equity fund sales by 16 domestic commercial banks totaled 22.5495 trillion won, shrinking by 5.9458 trillion won compared to a year ago. Compared to a month ago, it decreased by about 830 billion won, and over the first five months of this year alone, it declined by approximately 2.8 trillion won.

Over the past year, Woori Bank experienced the largest decrease. As of the end of May, Woori Bank's sales balance was 3.0459 trillion won, down by a massive 4.4485 trillion won from a year earlier. During the same period, Hana Bank and Shinhan Bank decreased by 1.3565 trillion won and 1.2142 trillion won, respectively. This was followed by NH Nonghyup Bank (-497.5 billion won), Industrial Bank of Korea (-379.2 billion won), and Busan Bank (-147.5 billion won). In contrast, KB Kookmin Bank increased by 2.2128 trillion won, showing a stark contrast. It is analyzed that KB Kookmin Bank largely avoided the fallout from the private equity fund crisis by hardly selling high-risk products such as DLF or Lime funds.

As distrust in private equity funds increased due to suspicions of incomplete sales and redemption suspensions, demand for private equity funds among individual investors sharply declined. The sales balance to individual investors at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?decreased by about 7.9392 trillion won compared to a year ago, while the decrease among institutional investors was only 512.7 billion won.

The private equity fund market, which showed rapid growth following the government's private equity fund activation policy in 2015, was hit hard by the DLF and Lime fund incidents, followed by redemption suspensions declared one after another by the Italy Healthcare Fund, UK Rooftop Fund, Discovery Fund, and Optimus Fund. The outlook for banks' private equity fund sales is also negative. This is because distrust in private equity funds is widespread, and financial authorities have strengthened regulations on private equity funds. In particular, financial authorities announced plans to inspect all 10,000 private equity funds and about 230 private fund managers by 2023. Shifting all responsibility for incidents onto sales companies is also cited as a factor contributing to market contraction. On the 1st, the Financial Supervisory Service ordered sellers of the Lime trade finance fund to return the full principal to investors. The sales amounts for Woori and Hana Banks reached 65 billion won and 36.4 billion won, respectively. Additionally, fines imposed on Woori and Hana Banks related to DLF were 16.78 billion won and 19.71 billion won, respectively.

Currently, banks are not launching new private equity fund products. Instead, they have proposed sales strategies centered on relatively stable public funds and bancassurance as alternatives. Woori Bank, banned from selling new private equity funds until September due to DLF sanctions, is focusing on strengthening asset management services to expand non-interest income. Hana Bank has become able to sell private equity funds again after the court accepted its request to suspend the execution of heavy sanctions but has not yet decided to resume sales. However, it plans to expand sales of public funds such as installment savings funds. Shinhan Bank is supplying ELT products with enhanced stability and developing products related to real assets such as bonds and real estate, while KB Kookmin Bank is strengthening its investment portfolio centered on public funds.

A representative from a commercial bank said, "In the current atmosphere, there is a concern that selling private equity funds carelessly could lead to damage, so we are hardly paying attention to private equity fund sales," adding, "In the second half of the year, we are planning sales strategies focused on products and services such as public funds, bancassurance, card agency, foreign exchange (currency exchange and remittance), and trusts."

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