Daiwa Securities SMBC Co. plans to invest about ¥200 billion of its own money in the coming year to restore profit that has been battered by a slump in underwriting fees.

Japan's second-biggest investment bank will lift principal investments to about ¥600 billion from ¥408 billion as of Dec. 31, President Shin Yoshidome said in an interview Friday. The Tokyo-based firm will mainly buy stakes in Chinese unlisted companies, he said.

Yoshidome, 56, said Daiwa SMBC needs more income sources after tumbling commissions for arranging stock sales in Japan caused third-quarter profit to drop 76 percent. The value of equity offerings fell by almost two-thirds last year, according to data compiled by Bloomberg, as companies used their own funds for expansion.

"Our business model doesn't work anymore," said Yoshidome, who assumed his position last April. "We can't forge a revenue structure on equity capital markets and financing anymore."

Daiwa SMBC is a joint venture between Daiwa Securities Group Inc. and Sumitomo Mitsui Financial Group Inc. Daiwa Securities owns 60 percent and Sumitomo Mitsui holds the rest. Daiwa SMBC had ¥14.1 trillion in assets as of Dec. 31.

The company will invest in Chinese companies in the information technology, communications, food services and transportation industries, Yoshidome said. Daiwa SMBC targets a 15 percent internal rate of return on principal investments.

In putting more of Daiwa's own money at risk in search of greater returns, Yoshidome is following a strategy employed by global rivals, including Goldman Sachs Group Inc. and Merrill Lynch & Co.

That strategy backfired for Wall Street firms last year as losses on mortgage-related investments led to lower profits and, at Merrill and Citigroup Inc., record losses.

"It won't be able to compete with overseas rivals in such a high risk, high return business overnight," said Mitsushige Akino, chief investment officer at Ichiyoshi Investment Management Co. in Tokyo. "It's a good idea to create a presence in China while overseas rivals stumble with subprime loan issues though."

Income from private equity investment and advising on takeovers accounted for less than 10 percent of Daiwa SMBC's revenue in the three months to Dec. 31. Goldman, the world's most profitable securities firm, got about a fifth of its net revenue from those businesses in the latest quarter.

Nomura Holdings Inc., Daiwa, Mitsubishi UFJ Financial Group Inc. and other brokerages in Japan underwrote 262 share sales worth a combined ¥2.9 trillion in 2007, down from 433 deals valued at ¥7.8 trillion a year earlier, data compiled by Bloomberg show.

"We have to expand our capital investment to cover the hole," Yoshidome said. His plan expands a January pledge by Shigeharu Suzuki, chief executive officer of parent Daiwa Securities, to increase principal investment to ¥500 billion.

Yoshidome, who visited Dubai in December, also said he wants to bolster fees from advising on cross-border takeovers involving Middle Eastern companies. Daiwa is seeking to advise Japanese companies developing office buildings, apartments, railways, airports, power plants and hospitals in Dubai as the population swells.

Daiwa SMBC is already in talks with Middle Eastern sovereign wealth funds seeking to invest in Japanese companies, Yoshidome said, declining to give more details.

"It's a nation-building project. Dubai wants to invest in Japanese companies that offer useful technology," he said.