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SEMA to favor PEF and PDF investments over real estate

By Oct 14, 2020 (Gmt+09:00)

Korea Scientists and Engineers Mutual-Aid Association (SEMA), one of the fastest-growing mutual aid associations in South Korea, plans to favor investments in private equity and private debt over real estate assets at a ratio of 6 to 4, its chief investment officer said in a recent interview.

The retirement fund intends to increase its portion of alpha investments that pursue mid-risk, mid-profit investments once share prices return to normal levels from recent overshooting, CIO Huh Sungmoo told The Korea Economic Daily.

Huh also said that SEMA will boost its venture capital investments to align with the fund's purpose established at its inception in 2003. As the end of this year's first half, SEMA has around 80,000 members and operates nearly 7.15 trillion won ($6.2 billion) in assets under management.

Huh Sungmoo, chief investment officer of SEMA
Huh Sungmoo, chief investment officer of SEMA

The following is the full transcript of the interview:

▶ On SEMA’s investment strategy for this year:

“We plan to reduce equity-type investments in alternative assets and stock market investments, while increasing debt investments to further stabilize returns. In terms of equities, we will shift from a passive beta-focused strategy to an active beta strategy. When the share prices return to normal, we will increase the portion of alpha investments.”

"In volatile market conditions like this year's, we will refrain from investing in structured products such as derivatives that are not resilient.”

▶ On stock markets:

“The discrepancy between the financial markets and the real economy is likely to narrow once coronavirus vaccines and treatments are available. But, share prices are unlikely to climb further even if the real economy picks up. Share prices have already risen, driven by abundant market liquidity, which means that the expected returns for stock investments will be lowered considerably.”

▶ On SEMA’s asset allocation:

“As of the end of June, equities and fixed income account for 12% and 15%, respectively. For alternatives, real estate accounts for 26%; infrastructure accounts for 14%; and corporate finance investments including private equity and private debt account for 23%.”

“We plan to increase the equities portion to 15% by beefing up our alpha investment strategy. As for fixed income, we are considering investing in Asian countries’ government and public bonds. For real estate, we will ramp up investments in industrial and residential facilities.”

▶ On ratio of domestic and overseas investments:

“As of the end of June, domestic investments and overseas investments account for 37% and 63%, respectively. The proportion of overseas investments has been increasing, but we are trying to maintain the level of domestic investments at 30% at least.”

“Infrastructure and real estate assets account for a high portion of overseas investments, and we’re seeing increased investments in equities and bonds abroad as well. As for alternative investments, we expect to see growth in corporate financing such as overseas PEF and PDF investments.”

▶ On alternative investment asset structure:

“SEMA is one of the fastest-growing mutual-aid associations in Korea posting annual growth of 1 trillion won in assets under management. If you look at traditional investment methods, the ratio of profitable equity versus stable bonds is set at 6 to 4. In alternative investments, we plan to maintain the ratio of corporate investments at 60%, with infrastructure and real estate accounting for 40%.”

“Infrastructure and real estate assets are similar to stable bond products while corporate finance products such as PEF and PDF investments that expect high returns are similar to equity products.”

▶ On PEF, VC investment methods:

“We have invested regularly in PEF and venture capital companies on a yearly basis. There are many PEF projects which offer frequent investment opportunities in addition to regular investments. As for VC, we prefer carrying out regular investments. Our investment in both areas is expected to increase as our assets under management continue to swell."

“In particular, VC investments are in tune with SEMA’s purpose, which aims to promote the welfare of scientists and engineers while contributing to Korea’s science and technology ecosystems. Also, VC investments have performed well so we plan to further increase these investments."

▶ On participating in special situation investments via TALF:

"When a big shock occurs in the market, it creates a weird, repeated phenomenon where the market price drops more than the asset's intrinsic value, and the gap is depleted after some time. There is abundant liquidity during times like this which offers good investment opportunities for long-term investors who are willing to wait."

"Actual returns from TALF are expected to be low compared to returns during the 2008 financial crisis. But it is an opportunistic investment where we can buy AAA-level structured bonds after borrowing funds from the Fed. The investment has low credit risk, but the stable policy leverage from the Fed offers a relatively high return compared to the risk. We invested targeting 10% annual returns."

"We also carried out investments into bonds and other assets through asset management companies that are well-versed in opportunistic investments."

▶ On COVID-19 and its impact on individual sectors:

"COVID-19 provided an opportunity for accumulated IT & science technology to surface and be widely used in our society. The healthcare industry led by telemedicine alongside online education were areas that had a solid technological framework but were not commonly in use due to industry workers’ resistance as well as legal and institutional regulations."

"On account of these trends, we expect to see a stark contrast between the industry sector and individual companies in the stock market. That being said, there is a greater need to step away from the conventional mean-reverting strategy and to diversify our investments into strategies that focus on alpha investments."

▶ On attractive industries and sectors:

"Everyone agrees that the healthcare industry is promising, especially since it is expected to see steady growth riding on the boom in the aging population. As an institutional investor, we’re also interested in the rental housing sector, which targets young adults as well as online education businesses."

"Housing facility values have surged higher than other real estate assets due to COVID-19. House and apartment values will continue to hike thanks to increased working from home. Because of this, we expect to see a boost in demand for childcare and housekeeping services."

"As the number of single or two-member households continues to grow, we expect to create steady cash flow by constructing rental housing facilities that offer childcare and residential services for young adults and newly married couples in the main districts of Seoul. These types of investments can serve as an alternative to bond investments."

"The online education industry has a bright future and its potential was highlighted during the coronavirus crisis. Online educational platforms that tackle Korea’s market have a good chance to tap into other Asian countries such as China."

▶ On potential real asset investments amid global low-interest trend:

"We're at a point where we need real asset investments that can hedge inflation, but it is important to distinguish between the good assets and poor assets. In principle, investments that are not aligned with the information innovation trend are discouraged. We plan to refrain from investing in retail facilities and will take a cautious approach toward office investments."

"We consider residential facilities near subway stations to be promising real estate assets in Korea. Other attractive assets are industrial facilities which include biolabs, logistics centers, or telecommunication network-related assets such as data centers and transmission facilities."

▶ On SEMA's organization:

"We have around 30 employees and our strength lies in offering diverse alternative investment experiences and a flexible investment culture. Going forward, we plan to recruit employees from diverse backgrounds."

Write to Sun-pyo Hong at

Danbee Lee edited this article.
Comment 1
  • p ms

    2020-10-15 03:48:26 (Gmt+09:00)