![[펀드사고잔혹사]① History of’toxic waste’ that has been depleted of medium-risk products](https://image.chosun.com/sitedata/image/202103/24/2021032401390_0.jpg "[펀드사고잔혹사]① History of’toxic waste’ that has been depleted of medium-risk products")
Input 2021.03.24 13:00
Experts point out that after the global financial crisis, the so-called “medium-risk product” (a financial product that has the characteristics of stocks and bonds at the same time) has caused many problems, which has caused the private equity crisis. It is that the points pointed out as the cause of the private equity crisis, such as incomplete sales urgently trying to increase performance, the flood of asset managers without product design and management capabilities, and public offering of high-risk products, have been concentrated in medium-risk products over the past decade. Private equity funds such as Lime and Optimus are also mostly mid-risk products.
In order to understand the underlying cause of the private equity crisis and to find a proper solution, we look at the problems surrounding medium-risk products, and point out what can be done to break the loop of recurring thoughts. [편집자주]
“The so-called’private equity crisis’ is more likely to have a structural cause rather than a financial fraud or mismanagement problem. It is a problem due to the nature of mezzanine finance (a product that has both the characteristics of bonds and stocks). “
Regarding the private equity crisis, which is currently undergoing dispute settlement and sanctions by the financial authorities, a high-ranking financial authority official, A, said in this way. Lime Asset Management, Optimus Asset Management, Discovery Asset Management, German Heritage Derivatives Combined Securities (DLS), Italian Healthcare Fund, etc., which caused the’private equity crisis’, and the behavior of sellers (banks and securities companies) that sold without any verification It means that it is not a coincidence that appears.
The key reason is that the’risk’ inherent in the product itself is far greater than that advertised by the manager or seller.
In general, in the case of medium-risk products, the rate of return is increased on the condition that risks such as a decline in the price of a specific index or product and the inability to pay a large scale are covered. Instead, the revenue stream is linked to the performance of the underlying asset. That’s why we hear about the two-sidedness of bonds that need to consider the possibility of default (non-payment) and stocks that depend on volatility in underlying assets.
However, when a problem occurs, raw materials with a large’tail risk’ are imported without any verification. Tail risk refers to a risk that is relatively unlikely to occur, but can seriously damage the value of an asset if a risk occurs.
Another reason is that it has not properly verified the opaque situation of overseas markets or domestic companies. Although it is a medium-risk product, it is actually toxic waste. In the case of the seller, the situation was created close to incomplete sales by rushing to sell without considering the risk strictly.
When medium-risk products have caused problems in the financial market over the past 10 years, they can be categorized as follows.
① It is said that it is’low risk’ and it turns out that it is’high risk’
Equity-linked securities (ELS) were one of the representative mid-risk mid-return products in the early 2010s.
ELS is a product that pays a contracted rate of return when certain conditions are met by linking with domestic and overseas stock indices or stock prices of individual stocks. Conversely, if stock indices or individual stock prices deviate from a certain standard, you will lose principal. ELS began to gain great popularity as it was introduced as a product that can reliably earn’interest rate + alpha (α)’ profits, centered on securities companies.
ELS, which became a problem, is linked to the stock price of a specific stock, and if the stock price falls below 50% of the base price, the stock price declines as much as the loss. It was a product that bought bonds and at the same time sold put options for the stock. The’alpha’ profit was generated from selling this put option.
At the time, securities companies advertised as medium-risk products on the grounds that it would be okay if the stock price did not plummet, but in fact, it was a product with a very high risk of principal loss from the perspective of financial consumers. An expert in the financial investment industry said, “It was a product that could only be made if someone buys put options in a large quantity.” Said.
At the same time, securities companies have begun to actively sell DLS (debt-linked securities) using the prices of raw materials such as crude oil and silver as an alternative to ELS. In addition, many of these DLS have inflicted great losses on investors due to falling oil prices. It is the same event as the DLS or DLF (Debt Linked Fund) that has recently become a problem.
DLS, which became a problem in 2018-2019, gets a fixed income of 3.5-4.0% per year if underlying assets (German Treasury bond interest rate, UK/US interest rate swap rate) remain above the threshold until maturity, but falls below the threshold. It is an investment product that can cause you to lose the entire principal.
Woori Bank (000030), Hana Bank and others advertised as a risk-free product by sending a text message stating that the probability of losing the principal is 0% while selling this product. More than half of those who invested in this product were elderly people in their 60s or older. Investors put as much as hundreds of millions of won as a time deposit in the introduction of a bank employee that there is a magical product that can stably generate’interest rate + α’profits.
② If credit rating is’A’, is it safe? Smashed corporate bonds
“It was a defeat to think that credit ratings were similar to foreign credit rating agencies such as Moody’s. I thought it was safe because the credit rating was’A-‘, and the risk of default was quite high.”
Mr. A, a retiree from a policy financial institution, is still sad when he thinks of the case in which he lost about 10 million won in 2012 under the court administration of Woongjin Group. We bought Woongjin Holdings’ corporate bonds (A-) because we judged that the risk of default was relatively low, because only half of the principal amount of 20 million won was recovered through legal management. “I had to look closely at the market situation, but it was a mistake to buy only the credit rating and the recommendation of the securities company to be safe,” he said.
The problem is that, unlike the explanations of financial product manufacturers or sales companies, situations often arise where the risk is greatly increased. At this time, the target rate of return jumps as the risk premium increases, and individual investors who do not have the capacity to carefully examine the risk are caught up in the rate of return.
In the early and mid-2010s, individual investors bought corporate bonds with a credit rating of A or lower and suffered a huge loss. Including Dongyang Group, Dongbu E&C, STX, Daewoo Shipbuilding & Marine Engineering, and Hanjin Shipping are representative. In particular, in the case of Tong Yang Group, through its subsidiary Tong Yang Securities (currently Yuanta Securities), CP (Corporate Papers) and corporate bonds were sold at high interest rates.
③ Brazilian government bonds only lose 74% in foreign currency translation
Foreign investment financial products also often have significant risks under the surface, unlike manufacturers or sellers. In addition to the default risk, there are many complex variables such as exchange rate, interest rate, and inflation, and there are many cases where the volatility risk from this is passed on to investors. Despite the high returns, in reality, the high returns are the price of taking risks intact.
However, the weakness of this product is that it carries all the risks of fluctuations in the real currency. Brazil is a country with chronic fiscal deficits and high inflation. In particular, as raw material prices plummeted after the global financial crisis, the value of the real currency continues to decline.
It has been said that it has made 10% annual profits, but interest income has shrunk by that amount due to a sharp drop in the exchange rate. Considering the high commission of up to 3% of the investment capital, it is estimated that a significant number of investors have suffered losses.