Private Equity Fund Balance Falls Below 20 Trillion Won...Steep Decline for 13 Consecutive Months

[Asia Economy Reporter Park Jihwan] The balance of private equity fund sales to individual investors in the banking and financial investment sectors has shown a decline for 13 consecutive months. This is attributed to growing distrust among individual customers toward private equity funds following a series of redemption suspensions, from Lime Asset Management last year to Optimus Asset Management recently. The so-called 'Donghak Ant Movement' and the resulting atmosphere of direct investment by individuals are also cited as one of the causes for the sharp drop in sales balances.

According to the Korea Financial Investment Association on the 28th, as of the end of July this year, the balance of private equity fund sales to individuals by financial companies stood at 19.7116 trillion KRW, down 707.9 billion KRW from the previous month. It is the first time in about two years that the individual private equity fund sales balance has fallen below 20 trillion KRW. The individual private equity fund sales balance first entered the 20 trillion KRW range in June 2018 at 20.3373 trillion KRW and had maintained that level since then.

Recently, the decline in individual private equity fund sales balances has accelerated. After peaking at 27.0258 trillion KRW at the end of June last year, it began to decrease, and this year, the sales balance has been dropping by 300 billion to 800 billion KRW each month. The proportion of individuals in the private equity fund sales balance also fell from 6-7% last year to 4.7% at the end of July this year.

It is analyzed that this is due to a significant drop in investor confidence caused by last year's derivative-linked fund (DLF) incident and various fund redemption suspensions such as those involving Lime Asset Management. Additionally, sellers have taken a defensive stance, temporarily suspending sales activities under pressure from financial authorities to return 100% of the principal in the event of fund accidents. In June, the financial authorities made an unprecedented decision in financial sector dispute mediation to return 100% of the principal related to the Lime trade finance fund, and sellers accepted this decision abruptly the day before.

A financial investment industry official said, "Since a 100% loss compensation plan has been introduced for fund product investments rather than deposits or savings, fund sales are inevitably shrinking overall," adding, "There is a widespread atmosphere in sales offices to avoid selling any products that carry even a slight risk."

As indirect investment products through experts have also been hit by a series of incidents, more individuals are increasingly opting for direct investment. In particular, this year has seen a clear influx of individuals into the stock market, known as the Donghak Ant Movement.

After the KOSPI hit a yearly low on March 19, it rebounded about 60% by the day before, during which individuals led the index rise by net buying about 30 trillion KRW worth of domestic stocks. During the same period, foreigners and institutions net sold about 13 trillion KRW and 14 trillion KRW, respectively.

Individual investors also achieved high returns. Among KOSPI stocks, the average return of the top 20 stocks by individual net purchases from March 19 to the 26th of this month was 53.6%. The average return of the top 20 KOSDAQ stocks by net purchases was 125.4%.

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