Cam Investment Advisory, a small discretionary investment firm now in its third full year since establishment, shook Korea's capital market in the second quarter with an all-time high net profit of more than 300 billion won. It is analyzed that proprietary investment (PI) in stocks met a booming market in the second quarter and swung to valuation gains worth hundreds of billions of won.
On the 26th, according to the asset management industry, Cam Investment Advisory posted a net profit of 307.4268 billion won in the second quarter of this year.
Considering that 80% (455.6 billion won) of the second-quarter total profit leader Mirae Asset Global Investments' 567.9 billion won came from equity-method gains at overseas subsidiaries, Cam Investment Advisory recorded the most profit based on domestic investment performance by a single legal entity. There is talk that it outperformed large managers with more than 1,000 employees with an elite team of just 15 people.
◇ Started with 1.7 billion won in capital, equity surged to 440 billion won… PI stock bets pay off
A ChosunBiz analysis of Cam Investment Advisory's performance since its 2023 founding found that the record results were driven by steadily accumulated equity and aggressive proprietary (PI) stock investing. Cam Investment Advisory started in Mar. 2023 with 1.7 billion won in capital and completed registration for discretionary investment business in Jul. of the same year. It laid the groundwork for PI operations from the outset by allocating 27% (900 million won) of assets to stocks in its first year. In Feb. 2024, its discretionary assets under management topped 100 billion won, and through steps including the launch of overseas discretionary products in Jun., annual profit jumped 13-fold to 17.4 billion won. PI stock assets also expanded to 5 billion won. In Nov. last year, buoyed by discretionary AUM surpassing 1 trillion won, it increased PI stock assets 19-fold to 94.3 billion won and undertook aggressive leveraged investing using securities finance borrowing fund (26.6 billion won). As a result, it earned 96 billion won in annual profit last year and secured 116.4 billion won in equity.
In the first quarter of this year, it filled 96.5% (157.5 billion won) of assets with domestic listed shares and earned 88% (26.2 billion won) of operating revenue from stock valuation and disposal gains. By the end of the first quarter, it had increased equity to 139.3 billion won, firmly laying the groundwork for the second quarter's record results. With 139.3 billion won in equity and a fully loaded domestic stock portfolio of around 157 billion won, profits surged as the KOSPI jumped in the second quarter.
Among the securities held in the second quarter of this year, foreign-currency stocks were counted as "0 won," indicating that the entire roughly 360 billion won in stock assets was focused on domestic won-denominated stocks under a listed shares long-only strategy. As domestic PI stock prices soared, they drove 91% of results. Of first-half operating revenue of 353.6 billion won, 321.3 billion won (90.9%) came from stock valuation gains (181.2 billion won) and disposal gains (140.1 billion won). As AUM grew, discretionary AUM surpassed 2 trillion won in May this year and exceeded performance hurdles, leading to 31 billion won in discretionary investment fee revenue alone.
◇ Operating margin hits 93.4%… "Profit and loss volatility" during market corrections is a challenge
By contrast, first-half SG&A was just 2.05 billion won (600 million won in employee salaries), yielding an operating margin of 93.4% (330.36 billion won in operating profit). The company used cash earned in the second quarter to repay securities finance borrowing fund in full, lowering its liability ratio to 2.3%. Reallocating 366.8 billion won, or 80.2% of assets, back into a domestic stock portfolio, equity exploded to 446.7 billion won as of the end of June this year.
However, some in the financial investment industry say the structural nature of the second-quarter results and future profit and loss volatility warrant caution. Because of the timing characteristics of recognizing performance fees, there is a seasonal optical illusion in which results concentrate in certain quarters, and with 80% of assets focused on stocks, profit and loss volatility could grow very large during a market correction phase after the third quarter of this year, including potential swings to valuation losses.
An official at a domestic asset management firm said, "The second quarter of this year was an unprecedented boom for the financial investment industry as a strong market, PI bets and performance fees aligned," and added, "With market volatility increasing in the third quarter, the key will be how well they defend the equity base and returns built in the second quarter through the year-end settlement of account."
A Cam Investment Advisory official said, "We manage domestic stocks centered on internal PI, and through the end of the second quarter this year, we booked significant stock valuation revenue thanks to the strong domestic market," but added, "Since July, the domestic market has entered a correction, and net profit is falling far compared with the second quarter."
Cam Investment Advisory was founded by Chief Executive Lee Ho-geol, an alumnus of the Seoul National University value investing club "SnuValue" and a co-founder of Rainmaker Asset Management.