[Inside Chodong] What the National Growth Fund Needs to Succeed

The Importance of a Governance Structure with Independence and Expertise
Performance Evaluation and Management Systems Must Be Established from the Outset
Continuous Communication with Deep Tech Companies Is Essential
Avoid 'Dividing Up the Pie' in Regional Investment Target Selection
Attracting Private Capital through IPO and M&A Revitalization
Provide Benefits Such as Income Deductions for Public Participation Funds

Last month, the outline of the 150 trillion won National Growth Fund was revealed. The plan is to raise 75 trillion won for the Advanced Strategic Industry Fund through contributions from Korea Development Bank, the issuance of fund bonds, and government fiscal support, while the remaining 75 trillion won will be raised through participation by pension funds, financial institutions, and the public. The fund will be operated through various methods, including direct investment, indirect investment, and lending. It will primarily support three categories: advanced strategic industries, venture scaling up and research & development (R&D), and regional growth projects.

The government announcement provided a vague blueprint regarding the most important aspect: governance structure. Korea Development Bank will be responsible for the practical aspects of investment decisions, but the 'Fund Management Deliberation Committee' will be composed of private sector experts. The plan is to communicate with the market at each stage, from identifying individual investment targets to project development, and to make decisions together with private sector experts. Korea Development Bank has already begun external recruitment for key team leader positions. Even if the fund is launched by the end of this year, most of the 150 trillion won exits will occur under the next administration. Therefore, it is crucial to establish a governance structure with personnel who are not swayed by external influence. The organization must ensure both independence and expertise.

Performance management, which is closely related to governance, is also critical. To achieve good performance, the fund must make sound investments. To make sound investments, it is necessary to recruit the best domestic experts. Concrete measures must be established to maximize the use of the talent pool in the private sector. In addition, a robust performance management system should be in place from the very beginning to energize the organization. As the fund is government-initiated, it would be desirable to include evaluation indicators such as job creation and technology dissemination, in addition to investment returns.

The investment targets of the National Growth Fund are mostly in deep tech fields such as artificial intelligence (AI) and biotech. Most infrastructure investment and financing will likely be used to expand data centers and power facilities. Unfortunately, asset management companies and venture capital firms, which are expected to be the main players in indirect investment, lack sufficient talent to properly evaluate deep tech. In deep tech fields, most of the talent is found within the companies themselves, rather than at financial institutions. Fortunately, the government has announced the establishment of the 'National Growth Fund Management Committee' composed of experts from the financial and industrial sectors to facilitate communication. The selection of committee members and the results of the committee should be disclosed transparently.

One concerning aspect is the inclusion of 'regional growth projects' as investment targets. In the past, each new administration announced plans to foster certain industries in specific regions. The result has been industrial complexes left empty in various regions. Investment target selection based on 'dividing up the pie' should be avoided. Ultimately, this issue circles back to governance. An organization with independence and expertise should objectively select investment targets after listening to the opinions of experts from academia, industry, and research institutes.

Incentives are also needed to attract private capital. The government stated that, along with pension funds, private capital with large pools of managed funds, such as banks and insurance companies, will participate 'voluntarily.' Most of the areas targeted by the National Growth Fund involve high risk, which naturally means that private capital will demand higher returns. The easiest way for private capital to achieve high returns is through exits via initial public offerings (IPOs) and mergers and acquisitions (M&A). Just as material, component, and equipment companies benefited from special technology listings in the past, the IPO market needs to be revitalized. In addition, various incentives should be provided to encourage large corporations to actively pursue M&A.

Publicly offered funds in which the public can directly participate will also be created. There is still no concrete blueprint for how these will be operated. The structure should be designed so that the public receives more benefits than pension funds or financial institutions. Since the risks are much higher than those of the National Pension Service, benefits should be provided from the investment stage. For example, if an individual invests in a venture company for more than three years, up to 30 million won can be fully deducted from taxable income at year-end tax settlement, which is a reference point worth considering.