More than 1,500 funds started the day "without prices" because of a baffling mistake by a fund administrator employee. As fund net asset values were not disclosed on time, asset managers and distributors handling the funds had to halt related business until the updated prices were posted.
According to the investment industry on Oct. 10, the net asset values for 1,566 funds from eight asset management firms, including Korea Investment Management, were not reflected for a time on 26th last month in the morning. The reason was that KB Fund Partners, the fund administrator, did not disclose the prices on time.
A fund administrator is a back-office specialist that calculates and discloses a fund's net asset value on behalf of the manager. Typically, the administrator updates the fund's price at night based on the next day and sends it to the Korea Securities Depository (KSD) data collection system (e-SAFE). The price is then reflected in the systems of distributors and the responsible asset managers and is used for fund sales and operations.
The KB Fund Partners staff in charge mistakenly thought the previous day's prices had been transmitted to the depository's system. The mistake was not discovered until the next morning. The staffer belatedly disclosed the price details at around 9:26 a.m., but an error occurred in the rush to send them manually, leading to a correction of the nonresident taxable base prices for 463 funds. Everything returned to normal at around 10:20 a.m.
The net asset value is a daily measure of a fund's value and serves as the basis for investors' purchases and redemptions. If it is not disclosed on time, fund transactions themselves become difficult, directly affecting the sales floor.
It is understood that no investor harm occurred because transactions could not be executed without the prices being posted. However, until the pricing issue was resolved, distributors such as banks and securities firms, as well as asset managers handling the funds, faced disruptions in their work.
A source in the investment industry said, "Distributors such as banks that need to use the prices receive the depository's data at 7 a.m. and apply it to their company systems, but due to KB Fund Partners' omission, they could not reflect it on time," adding, "It is an abnormal case."
In this incident of missing prices, Korea Investment Management funds accounted for most of them at 965. They were followed by 154 funds from affiliate Korea Investment Value Asset Management and 152 funds from Korea Investment Real Asset Management. Korea Investment Management plans to review collaboration with the administrator and the pricing process to prevent additional errors after this large-scale omission.
KB Fund Partners also drew up measures to prevent a recurrence and delivered them to distributors. The company first introduced a process to automatically check for disclosure omissions, and plans to upgrade the system by 30th of this month so that downstream tasks do not proceed if a disclosure is missing. Until improvements are complete, it will perform manual double checks directly.
KB Fund Partners said, "We will comply with laws and contracts regarding compensation that may arise from future delays in price disclosure," adding, "We will also respond promptly to distributor complaints arising from the revised nonresident taxable base prices."