Foreign asset management portfolio restructured

Principal entrusted to domestic managers grew 32-fold in 13 years, from $100m to $3.21b

The main and annex buildings of the Bank of Korea in Jung-gu, Seoul. [Herald DB]
The main and annex buildings of the Bank of Korea in Jung-gu, Seoul. [Herald DB]

The Bank of Korea plans to shift around $1 billion of overseas equity assets — currently entrusted to domestic asset managers — into bonds, as part of a broader push to raise the qualitative capabilities of South Korean fund managers.

The central bank announced Wednesday that it would restructure its foreign asset outsourcing portfolio for domestic managers along these lines.

The Bank of Korea first delegated Chinese equity management to domestic asset managers in 2012, then expanded the scope to developed-market equities in 2019 and US aggregate bonds in 2022. The principal entrusted to domestic managers grew roughly 32-fold over 13 years, from $100 million in 2012 to $3.21 billion in 2025.

The bank said domestic managers had largely achieved the initial policy goal of building a "quantitative foundation" — establishing overseas investment infrastructure and accumulating global management experience — and that it would now focus on advancing their practical investment capabilities.

The bank noted that overseas equity funds currently outsourced to domestic managers effectively track benchmarks in a passive manner, limiting the depth of investment expertise those managers can develop.

Going forward, the Bank of Korea plans to reduce the share of developed-market equity funds entrusted to domestic managers and expand support for bond funds.

Under the restructuring, around $1 billion of developed-market equity assets managed by three domestic firms will be moved into bonds. The exact amounts will be finalized through consultations with the firms involved.

However, the change involves adjusting the allocation between domestic and foreign managers within the bank's overall foreign asset management framework. The total equity and bond weightings will remain unchanged.

Jo Seok-bang, head of the Bank of Korea's Foreign Reserve Management Department, said the move would transfer some of the global equities held by domestic asset managers into global aggregate bond funds. "The conversion will take place overseas between foreign currency assets — it will not be exchanged into Korean won and repatriated," he said.

The bank also plans to replace its US aggregate bond strategy with a "Global Aggregate" strategy that significantly broadens the range of investable countries and currencies.

Using standard benchmarks as a reference, the US aggregate bond strategy covers roughly 10,000 securities in one country, while the global aggregate strategy spans about 30,000 securities across approximately 28 countries. Managing bonds across multiple countries and diverse currency zones simultaneously makes the global aggregate strategy considerably more demanding than the US aggregate approach, the bank said.

"Managers will need to actively account for differences in macroeconomic conditions and monetary policy across countries, which we expect will drive qualitative growth among domestic asset managers," Jo said. The bank also said management fees paid to domestic managers would more than double under the new arrangement.

The Bank of Korea said it plans to actively encourage domestic managers to expand their active management capabilities so they can compete on equal footing with global firms and, over the medium to long term, emerge as global players in their own right.

"Once this initiative stabilizes, I believe domestic asset managers will be able to establish themselves as global players," Jo said. "If further steps are needed down the road, we plan to continue working to strengthen the capabilities of domestic financial institutions through additional measures."


kimstar@heraldcorp.com