Brave Girl’s “Rollin” video went viral around early 2021, Kim Seong-min, one of the young men in South Korea who did fractional investments saw an opportunity. He’s trying to get into Musicow, a platform launched in 2016 where users can buy a small portion of music royalties, and get a portion of the song for himself for KRW 670,000 or USD 506. In a few months, its value had doubled, moreover he bought it for a large amount.
Young people in South Korea are enthusiastic about using their savings to work because they find it difficult to support their families or buy property. A 2021 survey found that young people in their 20s to 30s invest in stocks, cryptocurrencies or other assets.
Fractional investment platforms are becoming the most popular as they allow buyers to hold very small shares of assets. These types of investments exist all over the world, and real estate is a popular investment target. In South Korea, it is very bold in making offers. About 1.2 million Musicow users trade rights to song royalties. Tessa is one of several fine art platforms, including works by Banksy and David Hockney. For just KRW 1,000, investors can earn small returns when their paintings are auctioned or rented out to galleries.
Users claim that fractional investments are safer than standard equities or digital currency. With the meltdown of Luna, a South Korean coin, in May last year, cryptocurrency has had a terrible run. In 2022, the kospi, a gauge of South Korean stock market businesses, fell more than 20%. It makes Musicow’s returns of about 9% in 2022 seem enticing. But this perception is often misunderstood, said Hong Ki-Hoon from Hongik University. Investments by fractional investors are not “safer from a financial risk aspect than traditional assets”.
The Financial Services Commission (FSC), concurs with Mr. Hong’s statement above. It may take similar action to put limits on other fractional investing platforms after it has classified the assets exchanged on Musicow as securities. It will be based on the Howey test, an American method of classifying financial instruments, which, in theory, could classify the majority of fractional investments as securities.
However, the government wants to see industrial growth. FSC also views Musicow as an innovative financial service. On February 5 it announced plans to license the issuance of security tokens, blockchain-based assets that provide services for fractional investments. The finance ministry has also decided that profits made on fractional investments will not be subject to dividends or capital gains taxes. Securities companies are also rushing to be able to cooperate with fractional investment platforms. New investors should proceed with more caution.
Source: The Economist “Micro YOLO”