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Investment Structure of the Securities Market Stabilization Fund (SMSF) Announced by the Financial Services Commission in March 2020

Financial authorities announced plans on the 3rd to utilize a 10 trillion won Securities Market Stabilization Fund (SMSF) to prevent the aftermath of the emergency martial law situation, prompting related institutions to shift into a state of readiness. In the capital market, as the impeachment political crisis unfolds, there is analysis that political uncertainty is increasing and foreign capital outflows may continue. However, since there were cases of non-execution of the SMSF in 2020 and 2022, financial authorities are expected to exercise caution until actual deployment.

According to financial authorities and the financial investment industry on the 5th, the current main private pool operator of the SMSF is Samsung Asset Management, which took over the baton from Korea Investment Management in September. A Samsung Asset Management official said, "We plan to operate within the already selected universe of subordinate operators by inheriting the sub-funds," adding, "There are no plans to change the universe at present." The re-selection of subordinate operators is conducted every two years.

Our government decided at an emergency macroeconomic and financial issues meeting (F4 meeting) chaired by Deputy Prime Minister and Minister of Strategy and Finance Choi Sang-mok to supply unlimited liquidity until the stock, bond, short-term money, and foreign exchange markets are fully normalized. Financial Services Commission Chairman Kim Byung-hwan stated, "We will prepare so that market stabilization measures, including the 10 trillion won SMSF, can be immediately deployed at any time." On the 4th, the KOSPI index closed at 2,464, down 1.44% from the previous session, and on the morning of the 5th, it opened at 2,471.45, up 0.3% from the previous session. The market is expressing concerns that as the impeachment political crisis intensifies, political uncertainty is rising, which may increase future stock market volatility.

If the SMSF is activated this year, it is expected that the version established in 2020 will serve as the basic framework, similar to 2022. According to policy materials announced by the Financial Services Commission in 2020, the SMSF is operated using a Capital Call method. Instead of collecting all the targeted investment funds before execution, a portion is raised first and then executed. At that time in 2020, the first raised amount of 3 trillion won was managed by Korea Investment Management, which operated the parent fund of the SMSF. After Korea Investment Management selected subordinate sub-fund operators, it divided and managed the investment capital. The funds raised through the SMSF are invested in stocks, bonds, and alternative investments in the form of private equity funds, and it is a principle not to disclose investment returns. The secretariat, which coordinates operational tasks and implements resolutions of the steering committee, is still handled by Korea Securities Finance. A Korea Securities Finance official said, "We are in a state of readiness."

However, although the SMSF was prepared in 2020 and reached the point of execution in October 2022, it was not actually executed. There is also a possibility that it may not be activated this time if stock market fluctuations are not significant. A Financial Services Commission official said, "(The SMSF's) basic framework remains intact and will be promoted according to market conditions," adding, "For now, the message is just that preparations are in place."

This content was produced with the assistance of AI translation services.