The K-Pop of Financial Services
As Korea has shot out of the emerging market/developing country category and joined the industrialized world, everything seems to get more complicated and sophisticated. For Sungsik Cho, Managing Director and Chief Investment Officer at Mirae Asset Life Insurance, that means creating and managing financial products that meet the increasingly complex aspirations of Korea’s burgeoning middle class. Those familiar old black and white photos of Asian housewives sitting next to stock brokers and shouting buy and sell orders are giving way to scenes of affluent millennium couples listening to K-pop and sending text messages about smart beta and high yield bonds.
The Mirae Asset Group, which became Korea’s first local asset management firm in 1998, stands at the epicenter of this development. The company has been “a disruptive innovator in the Korean financial industry,” according to a case study undertaken at Seoul National University’s Graduate School of Business. And Sungsik Cho is part of that vanguard. He’s in charge of investing the $35 billion in the insurance company’s general account and its “special accounts.” The general account, which backs Mirae Asset’s insurance products, “is regulated by the government supervisory service,” Cho says. “Fixed income is the biggest asset, and we put on alternative investments as an enhancing vehicle.” Meanwhile, he says, “On the other side, the special accounts function like a 401(k) account in U.S.” Called the MVP (Miraeasset Variable Insurance Portfolio), this tax-advantaged retirement savings vehicle is built on an insurance chassis. It consists of MVP Equity, MVP 60 (where the equity maximum is 60%), MVP30, and MVP Fixed Income Fund. In the Mirae Asset version, Cho says, “we asset-allocate for them, because usually people hardly adjust their portfolio on their own.” Armed with a roster of funds invested in stocks, bonds, and securitized real estate, Cho says, Mirae brews up a mixture of these funds for each client “so it’s a fund of funds concept.” It’s often sold as part of a package of services from Mirae Asset. “Usually 70% or 80% of the clients’ money goes into MVP funds, and then they choose one or two other funds at their discretion,” he says. Cho adds, “When we started this concept, in April 2014, we think we were pretty much at the frontline, but four years later, many of our peers in Korean insurance companies followed us.” He adds that “the difference is they give discretion to asset management companies, but we don’t: We keep our core asset allocation function in-house, and we only distribute a portion of the assets or funds to the outside managers.”
Mirae’s funds are actively managed, and offer a range of strategies. Personally, Cho says, for the last dozen years, growth has trumped value, and “I, myself, think that value stocks are not value stocks anymore. Growth stocks are invading the value stocks’ area, and the traditional ways of thinking of growth stocks and value stocks are invalid now.” He also questions traditional measures of diversification, arguing that many ostensibly unrelated industries turn out to be correlated, while themes relating to lifestyle and technology may cut across industries and are often the true sources of diversification. He adds that, in investing for the special accounts, “over 50% of our equities are U.S. stocks. The Sharpe ratio is on the U.S. side of the stocks, so we prefer that.” The roster of bond funds features emerging markets and high-yield loans barbelled with investment grade U.S. issues and Korean Treasuries. Going forward, Cho says, “I have three key criteria for choosing stocks that can relate to the COVID-19 era and thereafter. One is lifestyle changes, and the second is the evolution of technology, and the third is “surprising user experiences.” These three forces are bringing transformational changes to various segments of the economy, he says. His view is not just a response to “the COVID-19 era,” he emphasizes. “That just accelerated it, so my concept is to focus on any area that indicates companies have responded to important economic factors.” He notes that in energy, for example, there had been much talk about “peak oil,” but then “shale popped up, and the old concepts of oil are completely different these days.” In general, Cho adds, old ideas about commodity investments have to be adopted because technology has changed both the supply and demand sides of the equation.
Cho was born and raised in Gwangju in the southern part of Korea and would then go to university in Seoul. Finance beckoned early on. He recalls, “When I was in middle school, I wanted to be trader. I learned English for that reason.” He wanted to trade “real, physical items,” but “when I got to the university, I took the classes from the finance professors, and I found out, if I go to some international department of a financial institution, then I can buy and sell invisible or intangible kind of products – not real things – and I thought that would be a brilliant experience for me.” Trouble is, “My family is a medical doctor-oriented family. My father’s a doctor and so are my older brother and older sister,” he says. But Cho had an uncle who was a highly regarded professor of finance in Korea, and “my uncle said to me, ‘There’s enough doctors in the family.’ And this is the whole new world which can be challenging.”
So after university, Cho notes, he capitalized on the ferment in Korea’s financial marketplace. The mid-1990s “was the period where Korea was preparing to develop options and futures markets. There were no derivatives markets in Korea, so companies just sent some of the young rookies to Tokyo and Manhattan to learn how to use the futures options. So, I went there and spent six months trading Nikkei futures and S&P 500 futures and options, and that was a fantastic experience.” He worked as a prop trader for Eugene Investment and Securities which had an alliance with Tokyo Securities in Japan, and Yamaichi International America in the U.S. Cho worked at the ill-fated Two World Trade Center on the 92nd floor in 1995. He came to Mirae as a prop trader in 2001.
Cho now lives in Seoul with his wife. His two daughters are students, one in London and the other in Seoul (and neither one is studying medicine). These days, Cho says, “My duty and my pleasure is playing golf with my wife. My favorite sport is golf, so I started to teach golf to my wife, and every weekend we try to play at least nine holes. That’s a huge pleasure for me.”
Cho is also an avid reader, ranging across everything from art to history, “but I like to read about geopolitical issues and some of the economics-related books and company-specific books,” he says. Recently he read Bezonomics: How Amazon Is Changing Our Lives and What the World's Best Companies Are Learning from It. “That really inspired me,” he says. Cho, who often reads three or four books at the same time, says his favorite thinker is Peter Drucker. “I’m really inspired by his ideas. Even 20 to 30 years later, his reasoning and thinking, for his views on the world and society are very, very precious and offer us huge lessons. Peter Drucker is not an investment guru, but he is really a genius.” Drucker, often called “the father of modern management,” wrote, “The best way to predict your future is to create it.” And in Korean financial services, that’s what Cho and Mirae Asset have been doing.
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