The appointment of executives at NH Investment & Securities, carried out in early December, was the first to reveal the style of President Yoon Byung-Woon since he took office. Previously, NH Investment & Securities had one vice president, but President Yoon promoted two executive directors leading retail and operations to create a vice president system with three members.
One of them, Lee Soo-Chul, head of the asset management division, was recruited in 2019 by former CEO Jeong Young-Chae as the head of project finance in the IB2 division. Before joining NH Investment & Securities, he spent 12 years in the National Pension Service's Asset Management Headquarters, holding positions such as head of the overseas equity team, head of the management strategy team, head of alternative investment, and head of management strategy. In 2018, he also served as the Acting Chief Investment Officer (CIO) of the National Pension Service. He has been leading the asset management division at NH Investment & Securities since 2023.
The asset management division is responsible for sales and trading (S&T), bond investments with proprietary capital, management and hedging of equity-linked securities (ELS), and carbon finance. The business conditions in recent years have not been favorable, as prolonged high interest rates led to significant losses in the Hong Kong H-index ELS. Additionally, major securities firms, including NH Investment & Securities, faced sanctions from the Financial Supervisory Service over allegations of mismanagement of bond-type wrap accounts and special cash trust accounts.
I met with Lee, who usually keeps a low profile in the media, on the 19th at the NH Investment & Securities headquarters in Yeouido, Seoul. He stated he was brought in as a troubleshooter to address the situation and noted he aims to build a sustainable business environment that does not revolve around short-term performance based on the long-term perspective he cultivated during his time at the National Pension Service. He also mentioned that regarding market trends, "it is becoming increasingly difficult to predict," emphasizing the need to focus on risk management.
─There has been a lot of noise in the areas you are in charge of.
"The aftershocks of last year's massive loss incident involving the Hong Kong H-index ELS have continued into this year. Since ELS is linked to the asset management division, we have faced significant difficulties. Moreover, there were issues related to wrap accounts and trusts last year, if you recall. Following that incident, the trust headquarters, which was in the outsourced Chief Investment Officer (OCIO) division, was transferred to the asset management division.
For me, it is a heavy mission to normalize the trust business. It is also the area where I have been dedicating the most time lately. I am examining the structure of the trust business closely to identify where the problems began and considering what kind of systems need to be built to prevent those problems from repeating.
─Have you prepared any solutions?
"It is difficult to specifically mention anything in this setting. However, to state the direction, it is "back to the basics." All the problems in the capital market stem from not adhering to principles. We are restructuring to establish a system that mandates adherence to those principles. Of course, this is something that all businesses involved in trust must work on together. I aim for a long-term view and consistent improvement.
We are also focusing on diversifying products and services. When analyzing why noise arises in trusts or ELS, it often occurs when too much concentration is placed on one side. Our division has historically had a high concentration on ELS in derivatives. We are working to reduce our dependence on ELS and increase exposure to other derivatives.
─What products could replace ELS?
"We are strengthening foreign exchange (FX) related products and services. First, investor interest in overseas markets has increased compared to the past. Responding to customer interests is a duty for a securities firm, even if it is not solely for the purpose of finding ELS alternatives. Clients may wish to hedge or invest using different currencies. We are working to establish FX services that can satisfy all needs.
─We are also responsible for carbon emission rights-related businesses. There are observations that environmental policies may change when the Trump administration begins its second term in the U.S. in the new year.
"I do not pay much attention to that. If we only looked at carbon emission rights in terms of trading, we would be sensitive to regime changes in major countries. However, the fundamental reason securities firms engage in the carbon emissions rights business is to satisfy our core clients, corporations. For these corporations, carbon emission rights represent a regulation they must navigate. Our true reason for engaging in the carbon emission rights business is to assist them effectively.
Some corporations simply request, "Please buy me a carbon emission right." Others say, "We want to invest from the carbon emission rights generation stage so we can receive the rights more effectively." We are participating in pilot projects to build our capabilities to respond to the diverse requests of our corporate clients. When policies change, we will provide services suitable for the new circumstances. We have no intention of slowing down or changing direction simply because policy variables arise.
─You worked for a long time at the National Pension Service's Asset Management Headquarters. Does that experience help in your work at the securities firm?
"I am benefiting from the long-term perspective I cultivated at the National Pension Service. The National Pension Service deeply analyzes the long-term impact and sustainability of any business it considers since it involves investing in citizens' retirement funds. Securities firms often focus on short-term results amidst fierce competition. While short-term results are important, they can also lead to side effects. Having someone like me involved in decision-making could help maintain balance and reduce mistakes.
─Let's talk about the capital market. Do you have any special perspectives on the market these days?
"I feel that predictions are becoming increasingly difficult. Have you seen the bond rates recently? They fluctuate by 10 basis points (1 bp = 0.01 percentage point) in a single day. This likely means that many who thought one way yesterday think otherwise today. When opinions shift drastically, bond rates are bound to be volatile. As it becomes harder to predict, the success rate of investments decreases. It seems we should be devoting more energy to risk diversification rather than trying to accurately forecast the future.
─Why do you think predictions are becoming increasingly difficult?
"Excluding unexpected variables like wars or viruses, I suspect it is the result of excessively rapid information dissemination in general trends. There were times when not everyone knew about a corporation's business reports. Now things are different. There is an overflow of technology for sharing information, and market participants have become savvier. The opportunity to gain insights before others to make money is almost nonexistent. News is aimed at delivering new information, but in this environment, buying stocks based solely on the news often means you are already late.
─Has the asset management division also adjusted its investment strategy to restrain predictions?
"Securities firms have been reducing the proportion of general stocks in proprietary trading for several years now. That space has been filled with mezzanine investments like convertible bonds (CB), warrants (BW), and exchange bonds (EB). If there are areas where we have increased our stakes in stocks, they are in unlisted stocks. This means we have reduced public market investments and shifted to private markets, where predictions are relatively easier.
─Although predictions are becoming increasingly difficult, the number of individuals entering investments has exploded.
"There has been an enormous increase in investment demand from clients who are not traditional institutional investors. However, as they realize that achieving excess revenue is difficult in a country experiencing stagnation and unpredictable forecasts, they have turned to the U.S. market. In that process, many individuals have experienced expanding their investment universe, realizing, 'Oh, I don't need to limit my investment territory to domestic markets.' There will be no going back to the past, where they only sought the Korean stock market.
However, I personally have concerns. Our country's investment culture primarily revolves around providing products and letting individuals select directly. Individuals pick what looks like a decent exchange-traded fund (ETF), and they directly buy stocks like Nvidia and Tesla without entrusting them to asset management firms. This means investors take it upon themselves to diversify their risks and build appropriate portfolios.
─Do you think the prospects for successful investment are low?
"Yes. In an atmosphere where various products are set up and invited with a 'Here, choose what you like,' the likelihood of individuals making good choices is low. As I mentioned earlier, the speed of information dissemination is too fast, and individuals struggle to gain an advantage in speed competition. I think Korea will gradually shift toward a culture of entrusting investments to expert groups, similar to the U.S.
─What do you think about the Korea discount (undervaluation of the Korean stock market)?
"I understand that the conditions supporting industries such as semiconductors, which have underpinned the Korean economy, are challenging. However, there are certainly areas where our corporations fundamentally need to change. If more companies begin to focus on shareholder value and act accordingly, I believe it would be fully possible to resolve the Korea discount. It is reflective when we are valued less than countries that are currently at war or under threat.