The Korean government will establish a strategic sovereign wealth fund of more than 20 trillion won, using shares held by policy financing institutions and inheritance-tax shares paid in kind as seed money. The strategy is to pursue so-called "relay investment," in which the fund takes over and holds for the long term the stakes of existing policy funds such as the fund-of-funds and the National Growth Fund after they nurture companies for a set period and are liquidated. The aim is to supply patient capital at the national level over the long term to national strategic industries including artificial intelligence (AI), nuclear power, aerospace, and biotechnology.
Koo Yun-cheol, Deputy Prime Minister and Minister of Economy and Finance, announced the "Plan to Introduce a Korean-Style Strategic Sovereign Wealth Fund" containing these details on the 31st. He held a meeting of the Emergency Economic Headquarters, which also served as a meeting of economy-related ministers and a task force of ministers on special management of livelihood prices, at the Government Complex Seoul.
The sovereign wealth fund will launch with initial capital of "20 trillion won plus alpha." The government will make in-kind contributions of 16 trillion won in shares of public institutions it holds, including the Korea Development Bank, the Export-Import Bank of Korea, and the Industrial Bank of Korea, along with about 4 trillion won in shares paid in kind in lieu of inheritance and gift taxes. The fund will hold these stakes only for dividend income, not to exercise management control over the public institutions. It will subsequently draw on additional government contributions and donations, dividends and proceeds from the sale of shares held, and returns on its investment operations. The fund's assets under management and returns will be restricted to reinvestment or to being paid out to the government as dividends and returned to the state coffers.
For the fund's investments, the government will not establish a separate institution but will set up a "strategic investment account" dedicated to investing in strategic industries at the Korea Investment Corporation (KIC). Its funds and investment decisions will be strictly separated from the existing entrusted account, which has invested foreign exchange reserves in overseas assets. The government plans to revise the Korea Investment Corporation Act to add the enhancement of national wealth and the strengthening of strategic industry competitiveness to KIC's founding objectives.
The investment targets and scope have been designed more flexibly than existing policy funds. Investment is possible not only in strategic industries such as AI, robotics, semiconductors, defense, biotechnology, nuclear power, aerospace, quantum, and materials, parts and equipment, but also in infrastructure such as data centers and energy clusters, and in financial industries such as banking and insurance. Investment is also possible in key overseas companies that can complement the supply chains of domestic industries. The government plans to secure stakes in overseas supply chain companies to strengthen economic security and support domestic strategic companies' overseas expansion.
The investment method is also notable. Unlike existing policy funds, which have been financed by fiscal spending and have provided loans or guarantees to companies, the fund will directly acquire shares in promising companies. The strategy is to exercise voting rights in proportion to its stake as a strategic investor (SI) and to capture gains from rising corporate value.
Another point of differentiation is that no separate maturity or liquidation date is set, allowing capital to be supplied over the long term without pressure to recover investments. This is because the criteria for investment decisions include not only profitability and stability but also the ripple effect on the national economy and growth potential.
In particular, when policy funds that have invested in early- and growth-stage companies reach their investment maturity, the fund will selectively purchase stakes and continue with follow-on investments. It also takes into account the problem of policy funds selling their stakes before companies go public or grow into global companies, thereby missing out on additional returns. In effect, a national-level "secondary fund" is emerging.
Unlike existing policy funds, which match private capital and share returns, the sovereign wealth fund will pursue a strategy in which the government holds 100% of the investment stakes. It will also serve as an anchor investor that draws in co-investment from overseas sovereign wealth funds and global asset managers.
The government plans to propose an amendment to the Korea Investment Corporation Act in August and push for its passage through the National Assembly within the year, before operating the strategic sovereign wealth fund starting next year.
"We will supply long-term patient capital to domestic strategic industries and pursue investment for national competitiveness and economic security," Koo said. "We will share the returns from investment with the public through government dividends and other means."
