Once an Instant Sellout, Korea’s Kookmin Growth Fund Is Being Pushed on Brokerages Four Months Later

Weak Second-Round Sales as Stocks Slump

Annual Returns Stuck in the 1% Range as Kosdaq Slows

Bank Allotments Go Unsold

Financial Regulator Shifts Supply to 14 Brokerages

“D-1 until subscriptions close for the Kookmin Growth Fund.”

Mirae Asset Securities, Korea Investment & Securities and NH Investment & Securities were among the brokerages that placed Kookmin Growth Fund ads on the opening screens of their stock-trading apps on Oct. 14. They rushed to step up marketing after weak second-round sales left allotments originally assigned to commercial banks redirected to brokerages. It marks a stark contrast with the first offering, which sold out from the first day.

The Financial Services Commission recently reallocated second-round Kookmin Growth Fund allotments originally assigned to 10 commercial banks to 14 brokerages in two rounds, according to the securities industry. Of the total 600 billion won ($433 million) on offer, 339 billion won ($245 million) had initially been assigned to banks and 261 billion won ($188 million) to brokerages. After bank sales fell short of expectations, about 89 billion won ($64 million) was shifted on Oct. 7 and about 57.9 billion won ($41.8 million) on Oct. 12, bringing the total reallocated amount to 146.9 billion won ($106 million).

The extra allotments were distributed based on how much of their original quotas each brokerage had already sold. Firms that had sold more of their initial allotments received more of the banks’ unsold balance. At Samsung Securities, the remaining allotment increased to 20.32 billion won ($14.7 million) on Oct. 12 from 10.29 billion won ($7.4 million) on Oct. 8. Mirae Asset Securities saw its remaining allotment rise to 20.74 billion won ($15 million) from 11.78 billion won ($8.5 million) over the same period. One brokerage official said securities firms are merely sales agents, but the FSC is telling them to sell the product quickly. The pressure to move the fund is considerable, the person added.

The first fund sold out quickly after its launch in May. Major commercial banks exhausted their allotments on the first day, and some brokerages sold out their online tranches within hours as investor interest surged. The second-round sale, which began on Sept. 30, has drawn a lukewarm response. As of Oct. 13, with two days left before subscriptions closed, cumulative sales totaled about 452.5 billion won ($327 million), or 75.4% of the target. Unless another 147.5 billion won ($106.5 million) is sold over the final two days, the offering will end short of its goal.

The industry says weak returns from the first fund are weighing on second-round demand. The Kookmin Growth Fund must invest more than 60% of its total assets in companies tied to advanced strategic industries. More than 30% must be used to provide fresh funding to unlisted companies and Kosdaq-listed firms that went public under the market’s special technology listing track. That structure leaves returns vulnerable when Kosdaq companies post weak earnings and poor share-price performance. As of Oct. 6, the first fund’s cumulative return was just 1.4%. The Kosdaq index closed at 823.86 on Oct. 14, down about 29% from 1,161.13 on May 22, when the first fund was launched. Another drawback cited for the product is that investors must keep their money locked up for at least three years to qualify for tax benefits.

Some in the industry also say financial companies have little incentive to push sales. Because separate compensation tied to fund distribution is not substantial, brokerage sales staff are not aggressively recruiting clients.

Bae Jeong-cheol and Lee Sun-a, Korea Economic Daily reporters bjc@hankyung.com