Seven major investment firms in South Korea have supplied approximately 12 trillion won in venture capital during the second quarter of this year. The firms exceeded their initial target of a 10% supply obligation ratio, indicating strong performance. Financial authorities plan to introduce incentives to encourage investment in high-risk venture companies by favoring the recognition ratio for such investments.
According to the Financial Services Commission, the total venture capital supply from the seven firms with supply obligations reached 11.6 trillion won in Q2, a 20.4% increase (2 trillion won) from the first quarter. The ratio of venture capital supply to the total amount raised through issuance of commercial paper and integrated investment accounts (IMA) was 19.5%, up 2.7 percentage points from the previous quarter, significantly surpassing the planned regulatory ratio of 10%.
Currently, three firms, including Korea Investment & Securities, Mirae Asset Securities, and NH Investment & Securities, are authorized to issue commercial paper and IMA, while four firms, including KB Securities, Hana Financial Investment, Kiwoom Securities, and Shinhan Investment Corp., are authorized to issue commercial paper. Samsung Securities and Meritz Securities, which received new approvals for commercial paper this month, will be subject to the mandatory regulatory ratio starting in the third quarter.
Venture capital refers to funding for small and medium-sized enterprises, bonds rated below A from non-large corporations, collateralized bond obligations (P-CBO), investments in new technology financing companies and venture capital (VC), national growth funds, and business development companies (BDC). The Financial Services Commission plans to gradually increase the mandatory ratio from 10% this year to 20% in 2027 and 25% in 2028 to promote venture capital supply.
Analysis of the supply amounts shows that P-CBO accounted for the largest share at 3.4 trillion won, followed by small and venture companies at 2.5 trillion won, new technology financing companies and VC at 2.3 trillion won, mid-sized companies at 1.3 trillion won, bonds rated below A at 1 trillion won, and KOSDAQ venture funds at 700 billion won.
Financial authorities will introduce various incentives to ensure that the quantitative expansion of venture capital leads to qualitative improvements. Concerns have been raised that the performance of relatively safe investment options, such as guaranteed bonds and secured loans, is treated the same as high-risk equity investments in venture companies. To address this, they are pursuing a plan to differentiate the recognition ratio based on risk levels.
Given the nature of venture capital, accurate information provision is crucial, prompting a review of the research system. There have been ongoing criticisms regarding the low credibility of securities firms' research reports, which have shown a bias toward buy recommendations, with sell opinions being less than 1%. A Financial Services Commission official stated, "There have been concerns about the reliability of securities firms' research due to low coverage of small-cap stocks and a market environment focused on large and mid-cap stocks. We will actively pursue improvements to enhance the credibility and quality of research and promote venture capital supply for small and KOSDAQ stocks."
The independence of research departments in securities firms will also be significantly strengthened. Current regulations prohibiting influence over research departments will be elevated to public regulation under the 'Financial Investment Business Regulations' to enhance normative power, and plans are being considered to separate the budgets of research departments from the revenues of corporate finance departments. The discrepancies in research reports will be calculated and evaluated annually by industry, with stricter oversight for industries with significant discrepancies.
A minimum coverage ratio for small-cap stocks will be introduced for investment firms, and those with high small-cap research coverage will receive incentives, such as adding small and venture company supply amounts when calculating mandatory venture capital ratios.
It will be mandated that at least 25% of annual report performance be allocated to companies listed below the top 300 by market capitalization on the securities market and below the top 150 on the KOSDAQ. For investment firms with a small-cap research coverage ratio of over 40% in the previous year, an additional 5% will be added to the mandatory venture capital ratio calculation for small and venture company supply amounts.
For companies planning initial public offerings (IPOs), the obligation to publish research reports will be strengthened from the current requirement of at least twice a year for one year to at least twice a year for three years.
A Financial Services Commission official stated, "The government, relevant agencies, and the financial investment industry will regularly review the progress of venture capital supply and continuously discuss key issues to expand venture capital supply."
* This article has been translated by AI.
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