Ahead of the era of the integrated investment account (IMA), concerns are growing in the securities industry about a widening "the poor get poorer and the rich get richer."
Because only Korea Investment & Securities and Mirae Asset Securities, which meet the 8 trillion won equity capital requirement, can offer principal guarantees and thus launch IMA products with higher returns than bank deposits, there is a strong possibility that if market funds flock to these mega-firms, the gap in size and returns with the remaining securities firms will widen further.
Small and midsize securities firms that cannot conduct IMA or commercial paper businesses are busy crafting self-help measures. In particular, securities firms with strong competitiveness in investment banking (IB) are strengthening strategies that use client assets as leverage in principal investment (PI). The firm and high-net-worth individuals (private banking clients) pool money to invest in listed-company mezzanine (CB·BW·RCPS) or promising unlisted companies. The securities firm effectively expands its own capital without separate funding, and clients gain opportunities for high-return investments.
According to the industry on the 20th, some securities firms are increasingly combining client funds raised through retail channels such as WM centers when pursuing mezzanine or unlisted company investments (PI). The head of a mid-sized securities firm said, "It is a structure in which the company and our clients form a single 'fund,'" adding, "From the company's perspective, it can increase the capital that serves as investment ammunition, and from the client's perspective, it offers an investment opportunity with the potential for high returns, a win-win structure."
In particular, securities firms that have obtained a new technology business finance company (new technology finance company) license have a wider scope of activity. Because they can specialize in investing in venture and technology corporations, they emphasize the strength of being able to offer diverse investment opportunities through retail.
However, the target is limited to the ultra-wealthy top 1%. Above all, when raising funds through retail channels, procedures such as the duty to explain are as stringent as those for private funds.
In addition, to launch as a formal financial product, it must pass an internal review committee, and it is not easy to structure it as a public offering fund for retail investors. Public offering funds must return money immediately when investors request it, whereas mezzanine typically generates large returns only by waiting for stock prices to rise.
An executive at a securities firm said, "In many cases, WM center PBs (private bankers) ask for co-investment with clients," adding, "High-net-worth individuals with prior investment experience mostly participate."
Recently, this type of fundraising has also been conducted through family offices. Traditional family offices operated by large securities firms focus intensively on managing the assets of wealthy families, business growth, and wealth succession. But the strategy of securities firms that have recently entered the family office market places emphasis on "bringing clients on board with high-return investment products sourced by IB."
Another official at a small or midsize firm said, "The IB department, with its long-accumulated experience, can share attractive investment opportunities with strong returns through retail," adding, "We can attract high-net-worth individuals with differentiated products."
This strategy is expected to serve as a niche for securities firms that cannot immediately conduct IMA or commercial paper businesses. Instead of large-scale capital increases or M&A, attracting client money to invest alongside the firm can effectively bypass own-capital limits.
However, the limits are clear. While securities firms usually allocate company funds as junior tranches and client funds as senior tranches, mezzanine and unlisted investments carry far higher loss risks than ordinary products
A securities firm official said, "Using client funds as leverage for principal investment is, literally, a self-help measure," adding, "It cannot be directly compared with an IMA that guarantees principal."