1. Korean asset management industry: challenges and opportunities April 14, 2011 Seoul International Financial Forum 1

2. Two observations (unrelated?) Korean consumers love big cars Government of Korea is committed to Green Growth 2

3. What about our asset management industry? Highly contrasted situation! Institutional business is robust and growing fast But Retail business is suffering from continuous redemptions for almost 3 years! How to regain retail investor’s confidence is our biggest challenge! Environment: Banks and Securities are in a big battle for market share in the High-Net-Worth segment 3

4. Korea is world #1 for number of funds (but many of them are small) 4

5. Small Fund issue – The case for Retail investors This is a major issue for our industry’s efficiency and profitability and most importantly, This is a very unfavorable situation for Korean investors A small fund is like a small car with an environment-unfriendly engine. How to solve the problem? 2 very opposite options: - To get out of the small car (fund liquidation), - To exchange for a better car, bigger and with better fuel efficiency (fund merger). The second option (fund merger) provides a real choice for the investor: -Get out (investor can redeem any time) -Keep driving in a better car Keep driving with a better car is win/win: - The AM industry does not lose the AUM. - The client is better treated. We need improvement (more flexibility) in fund merger policy 5

6. Small funds issue – The case for Institutional investors Korea has a high number of small single-investor institutional funds. The remedy is “IFRS”! IFRS introduction will have big impact on outsourcing: - More demand for large mandates with tailor-made guidelines - Less demand for single investor (small) private funds - New demand for investments into existing collective public funds (*) for specific (and well recognized) expertise : Index, High Yield, Overseas, Theme (Green, etc.), etc. (*) Funds with strong track-record and big size Big challenge and opportunity for the asset management industry! It will transform the way we conduct “institutional sales”. Focus will be on providing distinctive investment solutions. GIPS (Global Investment Performance Standards) will finally become a key weapon for business! 6

7. What about Fixed-income and MMF space? MMF: The dual NAV system with daily disparity ratio is creating arbitrage opportunities for investors and systemic risk for the AM industry, especially in a rising interest rate environment. A new benchmarking with practices in US and Europe is welcomed to resolve this issue. More generally, Fixed-income market is a challenge for the asset management industry: Big institutions purchase most of new bond issues and maintain a “buy & hold” strategy. Liquidity/diversity of counterparties for Repo, SLB, etc. is still low. It means “domestic” hedge funds would only have the equity space to deploy their skills… 7

8. Retail market paradox -Low demand for middle risk/middle return products  Clients do their own “barbell” strategy with MMF and high risk equity strategy  “ 모 아니면 도 ” (“All or nothing!”) -Fast changing trends, fast changing taxation, contributing to “herd” phenomenon  “Boom and bust” risk is always high, and confidence can be lost At the same time -Growing culture for long-term investments thanks to Regular Saving Plans -This is reinforced by the growing trend for corporate/retirement and private pension funds ( 퇴직연금, 개인연금 ), VA/VUL insurance products  Another paradox is these long-term pension savings are mostly kept in cash and balanced funds..... Training on long-term investment and product suitability is key 8

9. Regular Saving Plan : now mainstream for fund investments in Korea 9

10. 10 Retirement pension structure – as at December end, 2010 Source : FSS - DB : 20.9tn KRW (72%), DC : 5.2tn KRW (17.7%), IRA Type : 3.0tn KRW (10.4%) - DC breakdown : Saving account 74.4%, Fund is only 25.6% ! - Retirement pension (29.1 trillion won) only 22% of total retirement market (including Retirement insurance, etc.)

11. And what about “export” business? “Export is in our blood” -Korean equity: leading local AMCs and foreign affiliated AMCs (JVs, 100%) will play a growing role in the management of off-shore domiciled funds distributed globally.  Off-shore vehicles (Luxembourg, etc.) are key for global distribution. Asian passport is still far away (no single currency, no harmonized regulations)  Demand for dedicated portfolios from large global institutions could increase -Other expertise? 11

12. And what happened to the “import” business? Retail Off-shore funds’ distribution was “killed” by the tax benefit on on-shore funds in 2007 On-shore fund growth was stopped by the global financial crisis, and is now devastated by continuous redemptions (recovery of the market, end of tax benefit) But Concept of diversification is not “dead” -On-shore funds must survive and grow again (let’s not lose all the technology transfer, let’s not lose all the learning curve effort) -Off-shore funds bring new solutions  Direct  Fund of funds  Absolute return offering (including hedge funds) “Import” is good for the development of the local asset management industry and is good for consumers (investors) 12

13.  First group of signatories in US and Europe signed in April and May 2006. They included top asset management companies AND large institutional investors (“asset owners”).  First group of signatories in Korea signed in June 2007. They included only asset management companies (6, including NH-CA) and ESG research service providers Significant step is NPS signing PRI in summer 2009 It leads the way for other institutional investors to embrace SRI approach. UN PRI - Principles for Responsible Investment : what about Korea? 13

14. 14 To deliver performance AND meaning to investors Awareness on sustainability issues (corporate governance, climate change) is definitively increasing: - growing SRI AUM from institutions - opportunity for Green funds to be accepted as long-term diversification Integration by investors (asset management companies and asset owners) of ESG criteria in the investment process will gradually become main-stream. Retail investors will also more and more request performance AND meaning to their investments. As PRI signatories, we must promote collaboration and engagement to ensure that sustainability and investment go together. Korea can provide a strong illustration of this new momentum