Once-Hot Kookmin Growth Fund Gets Pushed Onto Brokerages Four Months Later After Weak Second-Round Sales

Weak Demand for Second-Round Offering

Annual Returns Stuck in the 1% Range as Kosdaq Slows

Bank Allocation Left Unsold

Financial Regulator Redirects It to 14 Brokerages

“D-1 until subscription closes for the Kookmin Growth Fund.”

Mirae Asset Securities, Korea Investment & Securities and NH Investment & Securities were among the brokerages that placed ads for the Kookmin Growth Fund on the front pages of their stock-trading apps on Oct. 14. They scrambled to step up marketing after allocations originally assigned to commercial banks were shifted to brokerages because of weak demand in the second offering. That is a marked contrast with the first sale, when subscriptions sold out from day one.

The Financial Services Commission recently reallocated second-round Kookmin Growth Fund quotas assigned to 10 commercial banks to 14 securities firms in two rounds, according to the securities industry. Of the total $433 million on offer, $245 million had initially been assigned to banks and $188 million to brokerages. But after sales at banks fell short of expectations, about $64 million was shifted on Oct. 7 and about $41.8 million on Oct. 12, for a total of $106 million.

The extra allocations were distributed based on how much of each brokerage’s original quota had already been sold. Firms that sold a larger share of their initial allotments received more of the unsold bank inventory. At Samsung Securities, the remaining amount rose to about $14.7 million on Oct. 12 from about $7.4 million on Oct. 8. At Mirae Asset Securities, the balance increased to about $15 million from about $8.5 million over the same period. A brokerage official said securities firms are only acting as sales agents, yet the Financial Services Commission is telling them to sell faster. The pressure is substantial, the person added.

The first fund quickly sold through its allotment after launching in May. Major commercial banks exhausted their allocations on the first day, and some brokerages sold out their online inventory within hours as investor demand surged. But the second sale, which began on Sept. 30, has drawn a muted response. As of Oct. 13, two days before the subscription deadline, cumulative sales stood at about $327 million, or 75.4% of the overall target. Unless another $107 million is sold over the remaining two days, the offering will close short of its goal.

The industry says weak returns from the first fund are weighing on the second sale. 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 Korea’s special tech listing rules. That structure leaves returns vulnerable when earnings and share prices of Kosdaq companies weaken. As of Oct. 6, the first fund’s cumulative return was just 1.4%. The Kosdaq index, which stood at 1,161.13 on May 22 when the first fund launched, closed at 823.86 on Oct. 14, down about 29%. Another drawback 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 firms have little incentive to push the product. Separate incentives tied to fund sales are not strong enough, leaving brokerage sales staff less aggressive in attracting clients.

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