Fractional investment in K-pop, art trending among young S. Koreans

Low borrowing cost during the COVID-19 pandemic has pushed millennials and Generation Z in South Korea to invest in stocks and cryptocurrencies. It was then that fractional investment platforms began to catch the eyes of the young investors, luring them with trendy items and the idea they could profit off of their pocket money.

Musicow, the nation’s first music copyright trading platform that has amassed more than 1 million users as of February has become a major fractional investment platforms backed by the popularity of K-pop. The firm boasts that it has processed 350 billion won ($277.2 million) worth of transactions so far and promotes its products with brand ambassadors including K-pop songstress Sunmi and veteran singer-songwriter Yoon Jong-shin. Over 900 songs are available for trading through the platform.

The platform allows investors to purchase the right to claim profits from copyrights, based on agreements with artists and creators. The rights are put up for auction, and the highest bidders receive a certain number of shares.

Similar to Musicow, fine arts fractional investment platform Tessa has seen growing popularity among investors in their 20s and 30s, according to the firm. Tessa’s users have quadrupled from end-2021 to 100,500 as of Monday, with 34 percent in their 30s and 18 percent in their 20s.

It offers 32 collections at the moment, but plans to expand it to 40 by the end of the year. Investments are carried out in a “rights auction” way like Musicow and investors can start bidding from 1,000 won.

Commercial real estate is not an exception to this trend, as investors can purchase related shares through platform Kasa. The prices usually start from 5,000 won per share.

Other platforms such as Treasurer allows investors to purchase pieces of non-fungible tokens, expensive wines and watches, while Bancow focuses on investing in Korean beef, offering investors to choose their own cows in local farms.

But the fractional investment platforms, which were operating under relatively lax regulations compared with stock and crypto have arrived at the crossroads, with financial regulators wary of their weak investor protections, despite the fast-growing popularity.

The policymaking Financial Services Commission last month signaled tighter monitoring on fractional investment platforms by classifying Musicow as a tool for securities trading, based on the nature of its trading, which is about trading the right to claim profits from the assets and not buying the actual copyrights.

In line with the FSC’s decision, the Securities and Futures Commission, the securities watchdog here, announced that only 20 percent of some 1 million users of Musicow were “active traders” on the platform, adding that 80 percent of the users have yet to purchase any products there. Authorities also expressed concerns that investors may mistake fractional investments as a form of “actual ownership” when most of it is just buying “rights” of the items.

“The FSC’s move on Musicow signals the start of tighter monitoring and regulation for fractional investment,” Lee Hyo-seob, an analyst at Korea Capital Market Institute said.

“But by adding the new investment to the securities group, authorities would have to be aware of Ponzi schemes via fractional investment,” he added.

By Jung Min-kyung (mkjung@heraldcorp.com)