"30 Trillion Won Fund Needed to Usher in the 'KOSDAQ 3000' Era"

Venture Groups Propose Policies to Revitalize KOSDAQ Market
30 Trillion Won Fund Suggested to Expand Institutional Investment
50% Allocation to Existing Shares and IPOs... Boosting Long-Term Investment
15% Income Tax Deduction to Stimulate Private Investment

Compared to the KOSPI, which recently reached its highest point in four years, there has been a proposal to introduce a 30 trillion won fund to revitalize the underperforming KOSDAQ market. The plan aims to boost the KOSDAQ index, currently at the 800 level, up to 3000 by expanding institutional investors' participation.

On July 30, the Korea Venture Capital Association (VC Association), together with the Venture Business Association and the KOSDAQ Association, held a press conference at the Yeouido Korea Federation of SMEs, calling for the introduction of a KOSDAQ revitalization fund as part of their policy proposals for invigorating the KOSDAQ market.

The core of the proposal is to create a "KOSDAQ Revitalization Fund" worth 30 trillion won over three years, with 10 trillion won invested annually, to supply liquidity to the KOSDAQ market and promote a shift toward institutional investor-driven market structure. The plan involves establishing a parent fund funded by the government and policy financial institutions to serve as a catalyst for private investment. Private capital, including that of the general public, would then be matched to form sub-funds, ultimately raising a total of 30 trillion won.

Although several measures have been introduced to vitalize the KOSDAQ market, many have pointed out that these have been insufficient to significantly raise the KOSDAQ index. The KOSDAQ Venture Fund, established in 2018 to boost the KOSDAQ market, is a representative example. It invests more than 50% of its assets in venture companies or small and medium-sized enterprises that have been listed on the KOSDAQ market within the past seven years. In return, it receives priority allocation of 30% of IPO shares listed on the KOSDAQ market.

While most government-led "managed funds" have failed to meet expectations and have faded away, the KOSDAQ Venture Fund has continued to grow in size and has been recognized as a flagship fund for small and mid-sized asset managers. However, it has not succeeded in promoting long-term investment in the KOSDAQ market, and its impact on the actual growth of the KOSDAQ index has been limited.

To address these shortcomings, the newly proposed 30 trillion won fund aims to expand investments in both existing shares and IPOs. The goal is to ensure long-term investment in the KOSDAQ market by investing 50% in existing shares (such as on-market trades and block deals) and IPOs of (prospective) KOSDAQ-listed companies, and more than 30% in new shares of small, venture, and KOSDAQ-listed companies.

Concerns have also been raised regarding this plan. Recently, IPO shares have often shown strong performance on the listing day but then quickly decline, leading to worries about investing policy funds in IPOs.

Kim Hakkyun, Chairman of the Korea Venture Capital Association, stated, "It is not a matter of whether the company is good or bad, but rather that investors feel there is a lack of buyers willing to take over the shares they purchase, which is why the post-IPO decline is so pronounced. For the long-term fundamentals of stock prices, institutional investors must take the lead, and if this system works properly, it could revitalize the innovation ecosystem."

Various incentives will also be provided to encourage private participation in the fund. These include offering priority loss coverage from policy funds to reduce private investors' risks, and providing the general public with opportunities to invest in sub-funds with risk-sharing through government finances by utilizing private indirect public offering funds (according to the Capital Markets Act). Additionally, a 15% income tax deduction (up to 50 million won investment) and a 5% corporate tax deduction on investments will be applied to stimulate private investment.

In particular, the introduction of this fund is expected to invigorate the currently stagnant VC market. Chairman Kim emphasized, "The exit market has become so challenging that investments in startups are being made more conservatively. The most important factor in the exit market is the KOSDAQ, and if the KOSDAQ is revitalized, it will play a crucial role in expanding venture investment."

He added, "We are maintaining ongoing communication with relevant agencies such as the Ministry of Economy and Finance and the Financial Services Commission, building consensus. Lawmakers from the ruling party also strongly agree on the need to establish funds for venture growth, so we see a high possibility of this plan being realized."

Meanwhile, the Venture Business Association called for improvements to the KOSDAQ structure centered on the market itself. The main points include introducing a private sector-led responsible listing structure to strengthen the responsibilities and roles of underwriters, and establishing a qualitative screening system focused on growth potential.

The KOSDAQ Association explained that it is necessary to expand institutional investment in the KOSDAQ market and increase incentives for long-term investors. It emphasized the need to encourage institutional investors' participation in the market and to expand the National Pension Service's share of KOSDAQ investments.