The house always wins: Asset managers collect tens of billions in fees on leveraged chip ETFs

Asset managers are expected to earn tens of billions of won a year in management fees from single-stock leveraged exchange-traded funds tied to Samsung Electronics and SK hynix, even as retail investor losses continue to grow, according to Korea JoongAng Daily. The 16 products on the market, including two inverse funds, are projected to generate about 19 billion won in annual management fee revenue. The estimate applies each fund's management fee rate to its assets under management on the reporting day, when combined AUM was 9.92 trillion won.

The revenue picture is far larger at peak asset levels. Based on June 25, when combined net assets reached 17.6 trillion won, annual management fee revenue would have been roughly 34.2 billion won. The newspaper notes that actual revenue will vary with market performance and investor inflows and outflows.

Samsung Asset Management holds the largest share, with two related products accounting for a combined 5.81 trillion won in AUM and an estimated 15.6 billion won in annual fees, more than 82 percent of the total. Fee rates vary widely across products tracking the same underlying stock, with the highest nearly four times the lowest. Among long products, Samsung Asset Management charges 0.269 percent, Kiwoom Asset Management 0.2 percent, and Hana Asset Management and KB Asset Management 0.07 percent. Among inverse products, two-times ETFs linked to Samsung Electronics futures managed by Hanwha Asset Management charge 0.474 percent, the highest in the group. A Samsung Asset Management official said liquidity is the key factor for these products and cited 25 Authorized Participants and 15 liquidity providers in its network. Asset managers argue management fees are needed because the funds rebalance daily to maintain target leverage.

Investors also bear trust fees, fund administration fees, AP fees, index licensing costs, audit expenses, and trading and brokerage commissions. Securities firms earn separate commission income from the heavy short-term trading these products generate. The FSS estimates that commissions could reach as much as 10 trillion won from single-stock leveraged products, and average turnover for single-stock inverse ETFs reached about 1,800 percent over the most recent five trading sessions.

FSS Governor Lee Chan-jin has raised concerns about the structure. At a meeting last month, he likened securities firms and asset managers to the house in a gambling operation that collects a cut whether players win or lose. "The players gain little, while the system that runs the game profits. I am personally very concerned about that," Lee said.