As the KOSPI index continues its rally by breaking its record high day after day, the financial authorities asked securities firms to proactively manage the risks of leveraged investing.
The financial authorities also urged the industry to stay true to securities' core function of identifying growth potential and creating added value, emphasizing the supply of venture capital.
On the 7th, Vice Chairman Kwon Dae-young of the Financial Services Commission said at a meeting of the "consultative body to strengthen venture capital capacity in the capital markets industry" held at the Korea Financial Investment Association in Yeouido, Seoul, "We have repeatedly seen the scene where, after a liquidity party and market overheating end, bad assets burst out," and added, "Regarding the recently expanding leveraged investing, I ask each company to maintain the utmost vigilance over whether the investments are within a tolerable range and to conduct strict risk management."
Earlier, in Nov. last year, Vice Chairman Kwon apologized after noting that "borrowing to invest is also a kind of leverage." But as the stock market surged further this year and the zeal for borrowing to invest heated up, the emphasis shifted to the risks of leveraged investing.
At the meeting were seven comprehensive investment firms including Korea Investment & Securities Co., Mirae, NH, KB, Hana, Kiwoom, and Shinhan; eight small and mid-sized enterprise-specialized financial investment companies including Hanwha Investment & Securities and IBK Securities; and related institutions such as the Korea Development Bank and the Industrial Bank of Korea, who discussed ways to strengthen the capital markets industry's capacity to supply venture capital.
The discussions included measures to improve systems to strengthen the supply of venture capital. First, the number of designated securities firms specialized in small and venture companies, which focus on funding for SMEs and startups, will be expanded from around eight to 10. To bolster incentives for medium- to long-term funding, the designation period for these firms will also be extended from the current two years to three.
In addition, Korea Securities Finance will expand incentives, including extending the maturity of securities-backed loans from the current maximum of one year to a maximum of three years.
The meeting also discussed revitalizing the exit market. Participants agreed that Korea's exit framework is excessively skewed toward initial public offerings (IPO), which is cited as one of the bottlenecks in the venture and startup ecosystem, and shared the view that diversifying exit routes such as mergers and acquisitions (M&A) and secondary transactions is desirable.
In response, the financial investment industry is reviewing a plan to jointly supply about 1 trillion to 2 trillion won in exit-market liquidity and will finalize detailed operating plans by next month.
Meanwhile, the total amount of venture capital supplied by the seven comprehensive investment firms in the first quarter of this year was 9.9 trillion won, up 25.7% from the fourth quarter of last year. The average ratio of venture capital supplied to funds raised through short-term notes and integrated money accounts (IMA) exceeded this year's regulatory ratio (10%) at 17.3%.