[Viewpoint] How Should We View Fractional Investment?

The author often goes to Yeouido. Especially, they frequently use exits 4 and 5, where many acquaintances work. Since a certain outdoor advertisement took its place at Yeouido Station Exit 5, the fun of seeing celebrities while riding the escalator has become quite enjoyable. Seeing it often, the phrases also catch the eye.

"Music copyright fees as national salary arbitrage for additional profits!"

It's an attractive phrase. So, I looked into it. What is this company selling to investors? One thing is clear. Since it is a music copyright trading platform, it is easy to think from the advertisement that they are selling copyrights. However, looking at the bottom right of the captured image, in small white letters, it says that the copyright in question is a neighboring right. Is this a coincidence? Certainly not. We are well aware of such cases. It feels like an insurance policy clause, a very important matter requiring disclosure, so I looked up neighboring rights.

Neighboring rights consist of the rights of performers, phonogram producers, broadcasting organizations, and so on. Phonogram producers have the right to reproduce and distribute phonograms. These neighboring rights last for 70 years, and restrictions, transfers, registrations, etc., of neighboring rights are generally treated the same as copyright property rights.

To summarize, this company is selling the rights to reproduce and distribute phonograms. Therefore, this advertisement can certainly mislead people into making wrong judgments. Also, this company is not a copyright trading platform. Hence, this phrase is not true. Moreover, neighboring rights for old music expire.

After encountering neighboring rights, the world of fractional investment opened up. Artworks are also sold in fractions. One company that sells calves in fractions states on its homepage that the average return rate is 19.7%. An average return rate of 20% is actually higher than that of a really excellent hedge fund manager.

Putting aside greed for money and a complicated mind, the author organizes their thoughts.

1) Looking at the homepage, the purchase prices of investment targets provided by fractional investment companies are all disclosed. However, there are cases where after raising 2.1 billion KRW, the item is sold for 2.9 billion KRW five months later. It can happen once or twice, but it repeats dozens of times. Investors buy without verification, rather than checking if the purchase price is correct or if the investment destination is attractive. As a result, on fractional investment platforms, I do not decide the selling price or timing.

2) The principal-agent problem is also an issue that cannot be ignored. Imagine I am a farmer raising calves. There are two calves on the farm; one is my property, and the other was sold through fractional investment but I am raising it. Which calf would I feed better fodder? The answer is obvious.

3) Since they are telemarketing sellers, they are not included in the financial sector and cannot protect investors. Imagine the company goes bankrupt. Am I the owner of the artwork I purchased in fractions? However, the securities they issued have no legal effect. Although I clearly purchased ownership, I have to compete with other creditors to get the artwork I bought.

In fractional investment, you can either be the one making money or the one losing money. No one knows which side you will be on. But one thing is certain: the latter is much more common than the former.

Hong Ki-hoon, Professor of Business Administration, Hongik University