Woori Credit Suisse AM heads for possible break-up

Credit Suisse has initiated a break-up of its asset management joint venture with Woori Financial Group, and talks that will determine the fate of Woori Credit Suisse Asset Management (WCSAM) are underway.

"We are currently in discussions with Woori Financial Group to review the operating model and business strategy of WCSAM," says a spokesman for Credit Suisse in Hong Kong, declining to elaborate.

Woori Financial is currently reviewing a proposal by Credit Suisse, which has a 30% stake in WCSAM, to end the joint venture. Woori Financial is among the largest financial groups in South Korea with the second largest network of retail and brokerage outlets.

Credit Suisse isn't revealing its reasons for wanting to pull out of the joint venture, which was set up in April 2006.

One reason could be that Credit Suisse may be considering setting up its own asset management business or purchasing a 100% stake in an existing fund house in Korea. The likes of JP Morgan, Goldman Sachs and ING have taken a 100%-ownership approach in building their asset management businesses in Korea.

Another reason could be that Credit Suisse is interested in partnering with another local firm. This is less likely, however, because cultural differences in running a business have been known to get in the way of joint ventures in Korea and Credit Suisse would more likely want to go solo, industry players say.

Yet another possibility is that Korea's impending Capital Market Consolidation Act - designed to break down barriers separating the securities and asset management and futures businesses - could allow Credit Suisse to continue to gain exposure in the local market through its other existing entities.

Credit Suisse isn't giving up on South Korea's asset management potential, according to the spokesman.

"Credit Suisse remains fully committed to our other asset management interests in Korea," he says.

Credit Suisse has an offshore asset management business for institutional Korean clients, which operates independently from the joint venture. It also has an active investment banking business in Korea.

Korea has enjoyed strong growth since the 1960s as one of the original "Asian tigers" and now is one of the largest economies in Asia, with the third-largest equity market in the region after Australia and Japan. Although financial assets make up a large part of household assets in Korea, only a fifth of these are currently invested in equities and mutual funds, which is lower than in most other countries and suggesting that there is plenty of growth potential in this area. Retail investors have only started investing in mutual funds in a significant way since 2005.

The exponential growth of Korea's funds industry has been stalled, however, mainly by risk aversion stemming from the global financial crisis.

Despite the short-term obstacles, Boston-based financial services research firm Cerulli Associates expects Korea to lead the growth in assets under management in Asia in the coming years. Cerulli predicts mutual-fund assets under management in Asia ex-Japan to revisit their 2007 peak by 2010, and remain on track to hit $1.6 trillion by 2012, led by Korea. The firm expects AUM in Korea to grow by a compounded annual growth rate (CAGR) of 13% in the five-year period covering 2007 to 2012, higher than the region's expected CAGR of 7%.