[FOUNTAIN]Fund phenomenon embraced by Korea

It was on March 22, 1924 that Edward G. Leffler of Boston started it for the first time. With $50,000, he and two colleagues set up Massachusetts Investors Trust, the world’s first mutual fund. No doubt Mr. Leffler had no idea how consequential his business would be.
Eighty years later in 2004, 83 million investors had $7 trillion invested in more than 10,000 mutual funds in the United States. Ultimately, Mr. Leffler changed the way that Americans handle their personal finances.
Mutual funds came to Korea fairly recently. In May 1998, a bureau chief of the Securities Supervisory Board who came out of a meeting with Lee Hun-jae, then-chairman of the Financial Supervisory Commission, was completely puzzled. Mr. Lee handed him a memo on which was written “natural funds.” Mr. Lee ordered him to study it, and the bureau chief of the securities watchdog regretted having not asked him what it was.
He mobilized the entire staff to comb all kinds of materials, but to no avail. A few days later, he realized that he had misinterpreted Mr. Lee’s scribble and that he had actually written “mutual fund.” The past few days had practically turned the bureau chief’s hair gray.
In December 1998, the first Korean mutual fund, the Mirae Asset Park Hyun-joo Fund, was introduced. The 50 billion won ($49 million) fund sold out in just three hours.
Now, less than seven years later, there are 20 trillion won in Korean funds. Thanks to the brisk mutual fund market, the stock index has been rising, and the age of indirect investment, similar to that in advanced countries, has begun in Korea. The downside is that investors now have a hard time choosing among the countless different funds.
The Harvard Management Company, the prestigious university’s alumni endowment fund, controls $26 billion. Jack Meyer, who during the last decade has realized an average annual return of 15.9 percent, is known as an investment genius. He says the biggest secret of investment success is to choose a fund with low fees.
During the fund boom of the 1980s, American funds used to charge substantial fees. The economist Paul Samuelson rebuked those fund managers who were more interested in pocketing fees than in their clients’ interests.
Korean funds charge fees twice as high as their American counterparts. In the last two years, Korean banks and securities firms have earned more than 400 billion won in fees. If Mr. Samuelson were to hear this news, he would surely reproach Korean banks and securities companies.

by Yi Jung-jae

The writer is a deputy business news editor at the JoongAng Ilbo.