This Year’s Fund Market Grows Double Digits 'Approaching 800 Trillion'... Explosive Growth Expected Next Year

[Asia Economy Reporter Lee Seon-ae] This year, the domestic fund market in South Korea achieved double-digit growth. Industry insiders view this as significant, as it grew despite the sluggish investor sentiment caused by the COVID-19 pandemic and private equity fund scandals (such as Lime and Optimus).

According to the Korea Financial Investment Association on the 10th, the total assets under management in the domestic fund market reached KRW 789.094 trillion as of November 30. This represents an increase of KRW 94.1352 trillion compared to last year, with a growth rate of 13.5%. This growth rate is the highest since 2019, thanks to increases in money market funds (MMFs), bond funds, equity funds, and real estate funds since the beginning of the year.

The MMF assets under management increased as a large amount of market liquidity, investment standby funds, and government surplus funds flowed in. In particular, in August, it once recorded a historic high of KRW 188.5 trillion. However, towards the end of the year, due to withdrawals of government surplus funds, corporate fund demand, and holiday fund demand in September, the increase was limited to KRW 23.2 trillion compared to last year, reaching KRW 149.131 trillion.

Despite the weak bond market since the beginning of the year, bond fund assets under management increased in the first half of the year as institutions continued to allocate funds. However, in the second half, with the bond market weakness, funds outflowed, resulting in a decrease of about KRW 4 trillion, and the total assets increased by KRW 11.5 trillion since the beginning of the year to KRW 128.6002 trillion.

Special asset funds increased by KRW 8.3413 trillion since the beginning of the year, surpassing KRW 115 trillion. Real estate funds, which had shown a high growth rate close to 40% since 2005, only increased by KRW 13.1 trillion last year, breaking through the KRW 110 trillion mark. This was due to the impact of some real estate fund defaults and COVID-19. Although the impact of COVID-19 continued into 2021, abundant capital inflows led to a 10.2% growth compared to last year, reaching KRW 122.838 trillion.

Mixed asset funds, which recorded a decline last year for the first time since statistics began in 2015, reversed to an increase this year with KRW 9.5679 trillion growth. Researcher Oh Kwang-young from Shin Young Securities explained, "This is interpreted as a gradual recovery from the negative impacts of the Lime and Optimus fund scandals, with large asset holders and institutions resuming fund allocations to investment strategies and products that attract investor interest, such as private equity and public offering stock funds."

A notable feature of this year's domestic fund market, aside from the growth rate, is the recovery of overseas funds centered on equity funds. Funds investing only domestically amounted to KRW 531.901 trillion, while overseas investment funds totaled KRW 257.194 trillion, with the ratio of domestic to overseas funds at 67.4% to 32.6%. Overseas funds increased mainly in equity and fund-of-funds types, expanding the overseas fund share by 0.4% compared to the end of the previous year.

In 2021, overseas fund assets under management increased by KRW 33.279 trillion, growing 14.9%. Although alternative investment types such as real estate and special assets remained sluggish due to the ongoing impact of COVID-19, the emergence of "Seohak Gaemi" (Korean investors investing in US stocks) increased interest in overseas equities, leading to significant growth in overseas equity and fund-of-funds. Overseas equity fund assets increased by KRW 2.1 trillion last year and by KRW 8.4578 trillion this year, marking the largest scale since 2007. This indicates the strong investor interest in overseas stock investments.

The fund market is expected to continue growing next year as well. In 2022, the fund market is anticipated to expand its interest beyond the overseas equity funds, ESG funds, public offering stock funds, lifecycle funds, some IT funds, and sector funds that were prominent this year, to a wider variety of fund types.

Researcher Oh said, "As COVID-19 concerns gradually ease towards the end of 2022, alternative investment areas including real estate are expected to recover, strengthening the growth of private equity and overseas funds." He added, "Additionally, with the introduction of the default investment option system, growth in retirement pension funds centered on target-date funds (TDFs), and the expansion of online-only fund investments by individual investors will continue." He further noted, "The ETF market is expected to keep growing as funds flow in due to deregulation of active ETFs, the emergence of ETFs with various themes, and the tax benefits of Individual Savings Accounts (ISA) ahead of the domestic stock capital gains tax implementation in 2023." Park Ji-young, a researcher at Ebest Investment & Securities, also forecasted, "If active ETF regulations are eased, a variety of ETF products will flood the market, potentially increasing fund inflows."

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