IMA, Issued Notes Pull In Nearly 5 Trillion Won—But Doubts Grow Over Wh...

Nearly 5 trillion won of market liquidity flowed into brokerage firms’ Investment Management Accounts (IMA) and issued-note products over the past three months, data showed. The inflows are attributed to the relatively higher yields offered compared with products at other financial institutions. However, concerns are also emerging that securities firms may struggle to generate outsized returns, given stringent portfolio requirements such as mandatory allocations to corporate finance (IB) assets and venture-capital investments.

Headquarters buildings of Mirae Asset Securities and Korea Investment & Securities / Courtesy of each company

According to the Korea Financial Investment Association (KOFIA) on the 22nd, total IMA liabilities at the three securities firms designated as IMA operators stood at 273.79 billion won as of end-March. That was an increase of 158.37 billion won from 115.42 billion won at the end of last year. Over the same period, issued-note liabilities at the seven licensed issued-note operators rose by 315.30 billion won, from 51.2743 trillion won to 54.4273 trillion won. Combined, the increase totaled 473.67 billion won.

By firm, Korea Investment & Securities—operating both IMA and issued notes—posted the largest rise at 1.5403 trillion won, followed by Mirae Asset Securities at 1.1135 trillion won. Next came Kiwoom Securities at 839.3 billion won and Hana Securities at 683.3 billion won, both newly designated as issued-note operators. They were followed by KB Securities, an existing issued-note operator, at 514.0 billion won, and Shinhan Investment Corp., also newly designated, at 198.5 billion won.

An IMA is a performance-linked product offered by “mega investment banks” (comprehensive financial investment business operators) with at least 8 trillion won in equity capital. Under the IMA scheme, securities firms take customer deposits and invest them in corporate finance assets—such as corporate loans and corporate bonds—to generate returns. Issued notes are short-term instruments with maturities of up to one year that brokerage firms issue on the strength of their own credit. Customers deposit funds, and the firm repays principal plus a predetermined interest rate.

Brokerages’ IMA and issued notes in the first quarter / Reporter Yoon Seung-jun

Funds have been gravitating toward IMA and issued-note products due to their perceived investment appeal. According to the Korea Federation of Banks, the average rate on bank installment savings products was 2.6%. That compares unfavorably with IMA’s base target return of 4.0% or higher and issued-note rates of 3.3% to 3.6% (for fixed-rate offerings). Against that backdrop, the outstanding balance of installment savings at deposit-taking banks fell by more than 2 trillion won, from 64.5403 trillion won at the end of last year to 62.1108 trillion won at end-March.

Still, questions remain over whether securities firms can generate substantial profits through IMA and issued notes. Korea Investment & Securities and Mirae Asset Securities generated profits of 9.646 billion won and 65 million won, respectively, over three months through their first IMA products launched in December last year. Based on their subscription amounts, that translates into returns of roughly 0.9% and 0.1%. Both lagged the KOSPI’s gain of 31.6% over the same period by more than 30 percentage points.

Korea Investment & Securities built its portfolio mainly around loans (53.1%) and beneficiary certificates/fund units (40.3%), while Mirae Asset Securities allocated its portfolio largely to bonds (79.3%). If the three-month operating income is annualized using a simple extrapolation, the implied annualized return would be 3.6% and 0.3%, respectively—both below the base target return (4.0% or higher).

Three-month IMA investment returns at Korea Investment & Securities and Mirae Asset Securities / Reporter Yoon Seung-jun

Market participants expect that if competition intensifies in the IMA and issued-note space, investment yields could fall further. Under the rules, issued notes must be deployed with at least 50% of raised funds allocated to corporate finance, while IMA requires 70% or more. In practice, that could concentrate funding into top-tier borrowers and push up funding costs. Another burden is the mandatory venture-capital allocation, which requires at least 25% to be filled with early-stage company investments.

Ahn Su-jin, senior researcher at NICE Investors Service, said that as the number of licensed securities firms increases, funding competition will intensify, expanding upward pressure on funding costs. “It will be even harder to secure investable assets that can generate returns exceeding funding costs,” she said. She added that the limited supply of high-quality deals is the biggest constraint, warning that structurally overheated competition for deals could lead to narrower spreads and looser investment terms.

Others also warned that the pursuit of returns could raise risk. Kim Ye-il, a senior analyst at Korea Ratings, said, “Given that securities firms ultimately bear the final loss burden, it is appropriate to view (IMA and issued notes) as direct investments from a risk perspective. An expansion of direct investment can lead to greater earnings volatility and a higher risk of asset deterioration.” He added that, as competition heats up and firms seek higher-yielding assets, concentration into “fad” assets such as overseas private credit could intensify.

Concerns have also been raised that profitability may deteriorate in a rising-rate environment. In the case of issued notes, firms typically raise funds short-term and invest in longer-maturity assets. When rates rise, funding costs increase first, while returns on invested assets reflect higher rates with a lag. According to NICE Investors Service, in the second half of 2022—when policy rates rose sharply—issued-note rates climbed quickly, but portfolio yields failed to catch up, and brokerage firms’ issued-note accounts recorded losses from 2022 through 2023.

Ahn said that without adequate deal-sourcing capabilities and screening infrastructure, the process of meeting mandatory ratios could tilt portfolios toward assets with weaker profitability and soundness. She added that early movers expanding into overseas corporate-finance deals can be seen as a response to structural limits in the domestic market, and stressed that firms should prioritize building systems for sourcing quality deals, strengthening capabilities, improving industry-by-industry underwriting expertise, and establishing professional post-investment management frameworks before pursuing balance-sheet growth.