Securities firms get creative with funds

With once-reliable stocks and bonds generating slow returns in a time of record-low interest rates and tepid economic growth, Korean securities firms are turning to different vehicles for money - including movies and airplanes.

Korea Asset Investment Securities, a local firm, recently launched a fund where clients can invest in movies produced and distributed by Showbox Mediaplex, one of the country’s largest film distributors. Within two months of its launch, the fund managed to attract 6 billion won ($5.2 million).

Park Yoon-sik, a senior manager at the firm, said Showbox movies in the past three years have generated about 30 percent returns on investment annually. Based on that figure, the firm expects the fund to generate 10 to 15 percent on returns a year.

It is unprecedented for Korean securities firms to be involved in bankrolling movies. Most investment for film production is managed by venture capital firms.

But securities firms are jumping in because companies are finding that investor needs are changing. “The new fund aims to attract wealthy investors looking to diversify their portfolios as returns from stocks and bonds are declining,” Park said. “And with film, investors can immediately know whether their investment is successful by looking at how well the movies are doing in theaters. This is one reason why people are interested in the fund.”

Also popular are funds that lend money directly to entrepreneurs in the United States and generate returns from interest. The loan seekers range from prospective franchisees of big brands like Burger King to doctors hoping to start private clinics. The target rate of return is usually around 7 percent a year.

Kenneth Lee, a director at JB Asset Management, a firm that offers such a fund, said many clients, especially those from the wealthy southern Seoul neighborhoods, have been interested in the fund product. The minimum investment required can run as high as 100 million won.

“The product has a short maturity of one year, and it is investing in the United States, a relatively stable market,” Lee said. “These reasons helped attract many investors.”

Demand is also high for funds in big investments like airplanes and real estate.

According to Zeroin, a fund analysis service, the number of total funds in the country related to airplanes rose from six in 2014 to 16 last week. Total investment rose from 227.2 billion won to 818.5 billion won over the same period.

One example of a firm offering this kind of fund is Meritz Securities. In November, it signed a contract with Mizuho Securities, a Japanese investment banking firm, to purchase 20 airplanes owned by General Electric for 1 trillion won and then rent them to airlines.

In a similar arrangement, KTB Investment & Securities invested 100 billion won in airplanes that were then rented out to Singapore Airlines. The annual rate of return varies from 3 to 9 percent.

Most of the investors, though, have been financial institutions. Yoo Byung-soo, an executive director at a local securities firm, said his company will likely come up with a fund product for retail clients to invest in planes this year.

In real estate, the investment methods have diversified. In the past, many securities firms collected money from clients and purchased properties themselves. The firms then pooled together the rent and distributed them to investors.

Now, there are funds that invest in mortgages. Daishin Securities started one that sells bonds backed by a luxury apartment complex in Yongsan District, central Seoul, last month. The fund hopes to attract 11 billion won with a target annual rate of return of 4.2 percent.

In addition to that, firms previously focused on private equity funds for real estate are making more public funds.

BY KIM KYOUNG-JIN [kim.youngnam@joongang.co.kr]