The Lee Jae-myung administration will create a 'national fund' of 100 trillion won+α to invest in advanced industries such as artificial intelligence (AI) and biotechnology. The industry expresses concern, saying it is a revival of the government-created fund that had become stagnant under the previous administration. Government-created funds reflecting the policy trends of past administrations have repeatedly lost their momentum and seen declines in revenue as they faced neglect from investors after a change of government.
According to political and financial circles on the 20th, the Lee Jae-myung administration plans to create a 'national fund' of 100 trillion won+α that will involve participation from the public, corporations, pension funds, and state banks to invest in advanced industries. Investment targets include AI, biotechnology and healthcare, content and culture, defense and aerospace, energy, and manufacturing.
The government has decided to invest the national fund in innovative small and venture corporations to nurture decacorns and hectocorns, such as TSMC and NVIDIA. A decacorn refers to a corporation valued at over $10 billion, while a hectocorn refers to a corporation valued at over $100 billion. Revenue generated from these investments will be distributed to the citizens participating in the fund.
The national fund will be designed as a mother-child fund structure that is jointly funded by the government and private entities. Investments from citizens and corporations will be directed into the fund created by the government.
The National Planning Committee noted in its 'New Government Growth Policy Guide' that 'if revenue generated from the national fund leads to government income, citizens will benefit from reduced tax burdens.' It added that in Singapore, through its national fund Temasek, citizens and corporations are enjoying a tax relief effect of 17.8% based on 2024 figures. It also stated, 'Citizens who invest in the fund will receive direct equity sales and dividends when the investment is successful.'
Funds led by the government are also referred to as feeder funds. These are primarily invested in key industries requiring government support but that private investors are hesitant to invest in due to issues of profitability or uncertainty. The Lee Jae-myung administration also plans to create a private fund of 50 trillion won+α as a feeder using a master fund of 50 trillion won.
However, there are many criticisms that the government's feeder fund has limitations in nurturing specific industries in the medium to long term. As the feeder fund is designed to align with the current administration's policy direction, its momentum and revenue tend to decline when the administration changes.
Previously, the Lee Myung-bak administration (green growth fund), the Park Geun-hye administration (unification fund), and the Moon Jae-in administration (New Deal fund) also created national participation funds. Although they gained popularity by generating revenue initially, they faced neglect from investors later in the administrations due to loss of momentum and poor performance.
As of the 20th, the annual revenue rate of the 'KB National Participation Policy Type New Deal Mixed Asset Investment Trust (private equity indirect type),' which was one of the New Deal funds of the Moon Jae-in administration, is -2.98%. The revenue rate over the last three months has dropped further to -3.26%.
The unification fund of the Park Geun-hye administration also showed high revenue rates in the early stages, but became stagnant following North Korea's nuclear tests in 2016, which strained inter-Korean relations. This eventually led to the closure of the Gaeseong Industrial Complex, causing most funds that had primarily invested in inter-Korean cooperation stocks to be liquidated. The 'Shin Young Marathon Unification Korea,' which was launched as the first unification fund, changed its investment focus to large corporations, contrary to its original intent.
The green growth fund of the Lee Myung-bak administration has also mostly recorded negative revenue rates. The number of green growth funds, which once exceeded 50, has shrunk to around 10, and the investment targets have also changed.
Many analyses suggest that because government-created funds primarily invest in corporate stocks, their effectiveness in fostering an industrial ecosystem is minimal. Additionally, the structure where the government defines the investment targets and the private sector follows these directives can disrupt the capital market.
An official from the asset management industry noted, 'When past government-created funds were popular in the early stages, a crowding-out effect occurred where money did not flow into other private funds,' adding, 'Since the Lee Jae-myung administration's national fund also offers tax benefits, it seems likely to sell well. However, it has already been confirmed in past cases that funds investing in corporate stocks led by the government do not have significant industrial nurturing effects.'