Korea Capital Market Institute

Privately placed funds and discretionary investments whose primary clients are institutional investors have led the recent growth of Korea’s asset management market since the global financial crisis. This article discusses the so-called side-by-side management effect that erodes publicly offered funds’ performance in order to favor privately placed funds and discretionary investments based on the existing literature and the empirical analysis on Korea’s equity funds market. Results show that no such effect exists. However, it is worth noting that the effect may arise in the future if the recent trend of rapid growth in those two areas continues. Hence, further policy efforts are necessary to strengthen the demand base in the publicly offered funds market to prevent asset management companies’ incentive scheme from leaning towards privately placed funds and discretionary investments.