Will Hanwha Asset Management Be Hindered by 'Small-Scale Funds'?

Hanwha Asset Management's Current Small-Scale Fund Ratio at 16.35%
Must Reduce by Next Month to 5% Rule to Avoid New Fund Restrictions

[Asia Economy Reporter Junho Hwang] Hanwha Asset Management, which has been targeting the market this year with the country's first thematic exchange-traded fund (ETF), is facing a potential halt in new product launches as the proportion of small-scale funds increases.

According to the Korea Financial Investment Association on the 20th, as of the previous day, Hanwha Asset Management's proportion of small-scale funds stands at 16.35%, the highest among the top five domestic firms based on net asset value of funds. Small-scale funds refer to funds whose principal amount is less than 5 billion KRW on the day marking one year since their establishment or setup, essentially funds that attract no investors.

The financial authorities view the proliferation of small-scale funds with similar investment strategies as potentially hindering investors' rational choices. Therefore, if the proportion of small-scale funds exceeds 5% of a management company's total funds, new fund launches are restricted to control the proportion of small-scale funds. Each management company submits a cleanup plan to the authorities every March, July, and October, and the authorities verify whether the targets are met two months after submission.

Hanwha's proportion of small-scale funds, which was only 9.09% at the same time last year, has sharply increased this year as 17 out of 119 funds have become small-scale funds. Most of these are outdated ETFs launched several years ago that failed to gain attention even during last year's ETF boom and are now facing cleanup risks. Hanwha stated, "We plan to reduce the proportion to below 5% by the end of next month."

However, some of these funds have high returns, which is expected to cause backlash from long-term investors. The Hanwha ARIRANG KOSPI Mid-Cap Securities ETF, launched in 2018, has a net asset value of 3.8 billion KRW (according to FnGuide) but has achieved a 71.21% return over two years. The Hanwha ARIRANG Mid-Cap Low Volatility 50 Securities ETF, launched in 2017, has a net asset value of only 3.5 billion KRW but recorded a 65.69% return over the past two years. The Hanwha ARIRANG 200 Equal Weight Securities ETF (2018) has about 4.5 billion KRW in net assets and a two-year return of 64.35%.

An industry insider commented, "If there is demand, small-scale funds might be maintained, but since the recruitment effect from launching new funds is significant, most will likely be cleaned up."

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