Days after a March negotiating session to buy San Francisco's Citicorp Center building for USD370 million, Park Hyeon Joo is in the air on a Korean Air flight bound for Seoul, sipping a glass of red wine.
He's not celebrating.
Park, founder and chairman of Seoul-based Mirae Asset Financial Group, the biggest mutual fund company in South Korea, has just given up on his plan to open a branch of Mirae Asset in Los Angeles despite its large Korean-American community.
He's seen firsthand the swoon in U.S. markets triggered by the subprime mortgage crisis. Recalling the flight, he says he took out his laptop and spent the next three hours writing a somber memo to his 16,900 employees.
"We may be passing through the darkest point of the tunnel right now," Park, 49, wrote. "We must have the insight to anticipate the future with long-term perspective and strategy."
Scrapping his Los Angeles venture was a rare setback for Park, who in the space of 10 years has risen from obscurity to become one of the most successful financial managers in Asia. From 2001 through '07, his mutual funds gained as much as 700 percent, and his fund company's assets under management rose to 60 trillion won (USD60 billion) from zero in 1997.
He's now in the midst of a worldwide expansion. His goal is to become the biggest Asia-based global fund company, specializing in emerging markets.
"It is impossible to talk about Korea's financial industry without Park Hyeon Joo," says Jang Hasung, dean of Seoul-based Korea University's business school. "He is a living legend."
Credit Crunch Victim
The Korean entrepreneur has been brought up short by the worldwide economic slowdown and the credit crunch triggered by the U.S. mortgage crisis. In Korea, his three flagship funds - the Independence Equity Investment Trust, Discovery Equity Investment Trust and Insight Balanced Investment Trust -- were down 17-26 percent this year as of July 30. His China Solomon Equity Investment Trust dropped 30.3 percent.
All told, Mirae Asset's funds lost 7.2 trillion won of their value in the first half of this year, including 4.3 trillion won
overseas, according to Seoul-based Zeroin Co., a fund evaluation firm. The losses have put a roadblock in the path of Park's timetable for expansion.
Park practically invented the Korean mutual fund industry 10 years ago after regulators loosened the capital requirements for asset management companies. He took advantage of the new rules to create Park Hyeon Joo Fund I, which earned a 95 percent return in a year with bets on companies such as Seoul-based Samsung Electronics Co. and SK Telecom Co.
Equity Fund Boom
The equity fund industry has since grown to 142 trillion won in mid-2008 from 4.1 trillion won in 2000, and Park controls more than a third of it through 126 Seoul-based funds. He's guaranteed himself a steady stream of new investments by signing up almost 6 million Koreans for an installment investing program in which clients make monthly deposits to their Mirae Asset mutual fund accounts.
Mirae Asset operates 240 funds around the world. It also runs South Korea's biggest brokerage firm by market value, its sixth-largest life insurance company and a global property management arm that as of May includes the San Francisco building plus 24 others in Shanghai, Hong Kong and Seoul that are valued at USD10 billion.
The group's three flagship units -- Mirae Asset Global Asset Management Co., Mirae Asset Securities Co. and Mirae Asset Life Insurance Co. -- have 133 trillion won under management. The asset management company runs equity and fixed-income funds, money market funds, hedge funds and private equity funds. Since Mirae Asset opened for business a decade ago, 46 other firms have followed it into the equity mutual fund business.
Biggest Fund Firm
In the fiscal year ended on March 31, 2008, Mirae Asset Financial Group's net income before taxes almost tripled to 609.7 billion won, up from 233.4 billion won a year earlier, on revenue of 4.3 trillion won. At the end of May, its asset management arm managed 50 trillion won in equity mutual funds, or 36.6 percent of Korea's market, according to Zeroin.
Mirae Asset manages more money than the next six asset managers combined.
In the past five years, Park has gone global, opening offices in Beijing, Hong Kong, London, Mumbai and Singapore. The funds he sells in those locales specialize in stocks of the so-called BRIC countries: Brazil, Russia, India and China.
Park says he sees global economic momentum shifting from the U.S. and Europe to emerging markets.
Emerging Market Shift
The four BRIC nations increased their combined gross domestic product to USD6.95 trillion in 2007 from USD2.56 trillion in 2000, and their 2.8 billion people account for 42 percent of the global population, according to the International Monetary Fund. "What we are seeing is a short-term turbulence as the power shifts to China and India from the U.S.," Park says.
The crew-cut Park says he'll be up and running in New York and Sao Paulo before the end of the year and in Sydney and Tokyo by 2009. In New York, he plans to sell shares in an index fund to local investors who want to invest in Asia. In Brazil, he'll buy real estate assets and start an asset management company.
"If you had to name an Asian brand in our industry, who is there?" says Park, dressed in a three-button gray suit with a purple tie. "I can't think of anyone."
Park says his model for international expansion is Genghis Khan, the Mongol warlord who conquered a wide swath of Asia and parts of Europe in the 13th century, and who is the subject of the film "Mongol." What Mirae Asset and the Mongol marauder have in common, Park says, is that both believe in promoting talented individuals, regardless of their ethnic background, and in decentralizing authority.
"We won't be able to expand globally only with Koreans," Park says. "We have to form allied forces."
The Mongols held sway over territory containing 200 million eople for 150 years, says Jack Weatherford, a professor of anthropology at St. Paul, Minnesota-based Macalester College and author of the book "Genghis Khan and the Making of the Modern World" (Crown, 2004).
"Genghis Khan's whole Mongol nation consisted of no more than a million people, and his army was between about 90,000 and 110,000," Weatherford says. "So he relied very heavily on local people to rule for him."
Park, whose favorite book is Jim Collins's "Good to Great," says he sees no reason why he can't do in funds what Korea's Hyundai Motor Co. has done in cars and Samsung Electronics in gadgets. Park lays out his investment philosophy in his autobiography, "Money Is a Beautiful Flower" (Kim Young Sa, 2007). His approach is three-pronged: Always understand what you are investing in, invest for the long term and don't follow the crowd.
New Money Pours In
In South Korea, retail mutual fund investors haven't lost faith even in the face of negative first-half returns. Korea's
asset management companies took in a net 25 trillion won in new money from investors in the first six months of the year. During the same period, Mirae Asset Group added a net 11 trillion won to its equity funds, according to figures from the Asset Management Association of Korea.
During the past seven years, many of Mirae Asset's funds have beaten the indexes handily. The Independence Equity Investment Trust has returned 584 percent to investors, as of July 30, since it was launched in February 2001, compared with a 158 percent gain in the benchmark Kospi index.
The Discovery Equity fund has returned 658 percent since its inception in July 2001. The China Solomon fund -- Solomon refers to the wise King Solomon of biblical renown -- delivered a 76.9 percent return in 2007, outperforming the benchmark MSCI China Index by 10 points.
Superior Stock Pickers
"Park Hyeon Joo and his people are superior stock pickers," says Kim Jung Tae, former chief executive officer of Seoul-based Dongwon Securities Co., where Park was a manager in the 1990s. He cites Mirae Asset's early investment in Daum Communications Corp., an Internet portal operator whose stock rose sixfold in the year ended in November 2000.
"They are several steps ahead in terms of seeing upcoming trends," Kim says.
Park started Mirae -- which means the future in Korean - in 1997 after spending 11 years as a broker and portfolio manager at Seoul-based Tong Yang Securities Co. and at the former Dongwon Securities.
When Park struck out on his own, his goal was to break through Korean investors' traditional wariness of stocks. Until Mirae Asset came on the scene, Korean stock buyers were mostly gamblers -- very short-term investors who bought stocks and then took profits or losses within a matter of days or weeks, Park says. Most Koreans kept their savings in bank deposit accounts or government bonds.
70 Percent Fee
To discourage the skittish investor, some Mirae Asset funds, such as the Insight Balanced Investment Trust, today charge an early withdrawal fee of 70 percent of any gains if the shares are sold within 90 days of purchase. The penalty falls to 30 percent for shares sold from 90 to 180 days after purchase and disappears thereafter.
Persuading savers to change their habits was particularly challenging in 1997, the year the Asian currency crisis broke out. As the value of Korea's won plummeted in 1997 and '98, thousands of businesses went bankrupt and interest rates soared to 30 percent; the Kospi fell 42 percent in 1997 alone. Ultimately, the Korean government received a USD57 billion bailout package from the IMF.
In 1998, the South Korean government lowered the amount of paid-in capital needed to start an asset management company to 10 billion won from 30 billion. That's when Park decided to go into the fund business.
His first vehicle would be the Park Hyeon Joo Fund I, which was 60 percent stocks and the rest bonds. Investors, influenced by a heavy advertising campaign, snapped up all of the shares in the 500 million-won, closed-end fund within 2 1/2 hours of the sale.
Closed-end funds issue a limited number of shares, trade like stocks and often sell their assets after a set period of time. Park's fund closed after a year, with a 95 percent gain in its share price.
Korean regulations at the time permitted only the sale of closed-end funds. The rule was lifted in 2001, and since then, Mirae Asset, like fund companies in Europe and the U.S., has offered open-ended funds.
The success of Park's first fund opened the money spigot. By the end of 1999, Park had 1.1 trillion won under management. In December 1999, he also opened Mirae Asset Securities Co., his brokerage arm.
Don't Sit Around
The new firm caused a small stir in the business press because its offices didn't include the wall-sized electronic stock ticker that graces most Korean brokerage offices. In his book, Park says his message to customers was: "Don't sit around staring at the wall. Let professionals do your investing." He reeled in clients by lowering the standard fee for stock purchases to 0.029 percent from 1 percent.
In a similar symbolic gesture, Park placed a clock with no hands at the entrance to Mirae Asset Group's Seoul headquarters - to signify to clients the importance of long-term investment.
The year ended on March 31, 2001, was Park's worst. His second closed-end fund series, Park Hyeon Joo Growth Fund II, lost 44.8 percent. The Kospi dropped 43.4 percent in the same period -- brought low by the worldwide collapse of Internet and tech stocks, including Korea's Hynix Semiconductor Inc., which over the course of 2000 and '01 reported losses of 5.1 trillion won.
In 2003, Park took advantage of a rising stock market and record low interest rates to launch Mirae Asset's installment saving program, under which salaried workers have a portion of their monthly income automatically deducted from their bank accounts and deposited in their Mirae Asset mutual funds.
The funds are popular among Korean workers eager to supplement what they expect to be meager state pensions. The number of Mirae Asset's installment fund participants increased to 5.89 million at the end of April from 2.13 million at the end of June 2006. Assets under management tripled to 24.5 trillion won from 7.6 trillion won.
"What Mirae Asset did that was incredibly intelligent was, they combined the innovation of installment-based products with the strategy of long-term investing," says Shaun Cochran, Seoul-based head of Korea research for CLSA Asia-Pacific Markets. "The killer thing that wrapped it all together was bank-based distribution."
Mirae Asset's orange-and-blue advertisements are everywhere in Korea: in newspapers and magazines and on billboards, television and radio. One print ad introduces Koreans to "Mr. Pandey," described as a star fund manager who picks stocks for Mirae Asset's Indian funds. Pandey is also featured, along with two other distinguished-looking fund managers, in Mirae Asset's ad for its Chindia Installment Fund.
Investing in Chindia
The ad copy reads: "Rising China and India -- don't miss either. Don't worry about which market to invest in. Leave that to Chindia investment professionals."
To build a pool of future investors, Mirae Asset in March 2005 created the Children's Fund, which has enrolled 800,000 Korean kids of all ages in mutual funds that held 1.4 trillion won at the end of June. Under the program, parents and grandparents set up funds on behalf of the children.
Mirae Asset holds weekend classes to teach youngsters how capital markets work. The company also pays to send some 2,000 child investors a year on a four-day trip to Shanghai to give them firsthand experience of China's burgeoning economy.
Money, or the lack of it, was a theme in Park's life from an early age. He grew up in the southern city of Gwangju, the son of poor farmers. His father died as Park was entering high school.
Park lost interest in his studies and spent the first part of high school reading hundreds of books -- from John F. Kennedy's "Profiles in Courage" to Machiavelli's "The Prince," he says. When his mother told him tearfully that his poor grades meant he would have to be a farmer like his father, he started studying again, and did well enough to earn entrance to prestigious Korea University.
Park recounts in his book that his mother taught him the value of money by charging him as much as 17 percent interest on funds she loaned him. When he went to college, she gave him his yearly tuition and living expenses in a lump sum so he would learn to manage it.
By his sophomore year, the business management major was investing some of the allowance in the stock market.
In 1985, Park rented a small office and started an enterprise writing and selling research reports on companies. From that point on, he says, he knew he'd eventually run his own investment firm.
Park's net worth is about 800.5 billion won, according to a July 9 analysis by newsweekly "Sisa Journal" and chaebul.com, which tracks the rich in Korea.
Shares Down 42%
He owns 38-80 percent of four unlisted asset management companies. One of them, Mirae Asset Capital, in turn owns 37 percent of Park's listed firm, Mirae Asset Securities, which was renamed Mirae Asset Investment Banking & Wealth Management in July. The company's shares were down 42 percent for the year as of
Park, who has been married for 20 years and has three children, says his long-term goal is to give most of his money away. In 2000, he founded the Park Hyeon Joo Foundation and donated 7.5 billion won to get it started. The foundation gives scholarships to students from disadvantaged families, operates libraries in poor neighborhoods and supports disabled children.
Separately, in 2006, Mirae Asset started a USD50 million scholarship program through which the company pays full tuition to about 30 students a year to study finance in China, the U.K. and the U.S.
In 2002, Park went back to school himself. He signed up for a nine-week, non-degree management course at Harvard Business School. Park, who took an intensive English course in the U.S. for six months before he started at Harvard, says his U.S. sojourn was in preparation for going global.
In June, Park appointed Indian Ajay Kapur, 43, former New York-based chief global equity strategist at Citigroup Inc., as Mirae Asset Asset Investment's chief global investment officer -- the first time a Korean securities firm had hired a foreigner for a top investment post. Mirae Asset will expand by setting up its own operations and making acquisitions.
"We plan to enter various markets by aggressively seeking M&A," Park says. "I have a strong intention to acquire an asset management company in China, and we are in the process. We are also interested in acquiring firms that cover Russia and Latin America."
In India, where Mirae Asset started its own operation two years ago, it recently walked away from a deal to buy Standard Chartered Plc's Indian mutual fund unit because the valuation was too high.
"We are very cautious about what we buy," Park says, adding that Mirae Asset has looked at 50 companies over the years yet has bought only three in Korea and started one joint venture - a Vietnamese brokerage -- overseas.
Park works long hours trying to identify emerging economic trends. When he finds a promising one, he'll discuss it with his top managers, who then reflect it in their investment strategy. When his managers suggest an investment, Park almost always knows more about the company than they do, says Lee Kyung Young, CEO of Mirae Asset Investment Banking & Wealth Management (HK) in Hong Kong.
"His DNA is made up differently," Lee says. "It's as though he was born to do asset management."
Last year, Park made renewable energy, including nuclear power and hybrid and electric cars, a new focus via the creation of the Maps Global Alternative Energy Index Equity Fund. He believes the world will inevitably shift away from fossil fuels.
His job is to spot economic trends first, says Park, sitting in the seventh-floor conference room of Mirae Asset's headquarters. He throws a pen in the air and catches it quickly. "It's like this," he says. "Businesses must adapt to the changing environment and grab the opportunities."