Why the 150 Trillion Won National Growth Fund Is Quietly Launching [Why&Next]

National Growth Fund to Officially Launch on the 10th
Launch Ceremony Postponed as Final Regulatory Reforms Underway
Major Announcement Expected at Next Week's Presidential Briefing
Challenges Remain: Allegations of Preferential Treatment a

The National Growth Fund, with a scale of 150 trillion won, is being officially launched. Although this is the largest policy fund in history, the government has postponed a large-scale launch event. This is because there are still issues to be resolved before full-scale investment begins, such as regulatory easing and coordination of work among various ministries. The government faces challenges such as controversies over preferential treatment for certain companies due to the loosening of the separation between banking and commerce, as well as the fund's expected low returns.

National Growth Fund Launches in Earnest... Regulatory Easing Is the Top Priority

According to the financial sector on December 9, the National Growth Fund, which will see a massive investment of 150 trillion won over the next five years, will be officially launched on December 10. The revised enforcement decree of the Korea Development Bank Act, which was approved at the Cabinet meeting on November 18, will take effect on December 10, and the National Growth Fund is also set to begin full-scale operations on this day.

The National Growth Fund is the largest policy fund ever, operated with a total of 150 trillion won-75 trillion won from the government’s Advanced Strategic Industry Fund and another 75 trillion won provided by private financial institutions, pension funds, and the public. Over the next five years, the fund will focus its investments on advanced strategic industries that can drive the Korean economy, such as artificial intelligence (AI), semiconductors, biotechnology, and robotics.

Despite the astronomical amount of capital being invested, the launch day is expected to pass relatively quietly without a major event. This is because the appointment of the Strategic Committee for the National Growth Fund, the establishment of the fund’s organization, and the easing of investment-related regulations have not yet been finalized. These matters require consultation among related ministries, including the Presidential Office, the Ministry of Economy and Finance, the Ministry of Trade, Industry and Energy, and the Fair Trade Commission.

Instead, the Financial Services Commission plans to announce the details of the National Growth Fund during the presidential work report on December 19. An official from the Financial Services Commission stated, "We are about to finalize matters related to the Strategic Committee for the National Growth Fund and the establishment of the fund’s organization," adding, "We will make a major announcement about the National Growth Fund as part of next year’s productive finance during the work report."

Before the large-scale announcement, regulatory easing for investment is considered a crucial issue to be addressed. The National Growth Fund needs to inject capital in various ways, including equity investment, infrastructure investment, and indirect investment, but ongoing criticism has pointed out that current regulations hinder smooth execution. In particular, the separation of financial and industrial capital-known as the separation between banking and commerce-has been identified as the biggest obstacle to active investment.

Relaxing Holding Company Regulations to Enable Equity Investment in Advanced Industries

Accordingly, related ministries such as the Fair Trade Commission, the Ministry of Economy and Finance, the Ministry of Trade, Industry and Energy, and the Financial Services Commission plan to soon announce regulatory changes concerning holding companies and the separation between banking and commerce. It is reported that a consensus has been reached to ease the rule requiring a holding company’s grandchild company to own 100% of a domestic subsidiary (the great-grandchild company) to a threshold of just over 50%. Lowering the ownership requirement from 100% to 50% would allow the National Growth Fund to make equity investments, and companies would face less pressure to raise new capital.

Representative examples include SK Hynix, a grandchild company of SK, and LG Energy Solution, a grandchild company of LG. SK Hynix, for instance, will need to invest massive amounts in AI semiconductors in the future, and the easing of regulations is expected to open the door for equity investment from the National Growth Fund. LG Energy Solution will also be able to receive fund investments for its secondary battery business due to the regulatory changes. A senior government official said, "Most of the details regarding regulatory easing have been coordinated and are expected to be released soon."

However, there are concerns that regulatory easing could undermine the intent of the Fair Trade Act, which is to prevent excessive concentration of economic power. Criticism has also emerged that this regulatory change is a tailor-made policy for SK, as it is reportedly similar to institutional reform ideas previously submitted by SK to the government. In response, SK Group Chairman Chey Tae-won explained, "We were not seeking the separation between banking and commerce," adding, "My intention was to request a new system to accommodate large-scale AI investments."

Given the massive capital involved, there is also significant pressure for the fund to generate returns. This is because many previous policy funds, such as the New Deal Fund, Green Fund, Unification Fund, and Materials, Parts, and Equipment Fund, failed to deliver adequate returns and ended inconclusively. The government’s decision to involve business leaders such as Mirae Asset Group Chairman Park Hyeon-joo and Celltrion Chairman Seo Jeong-jin as co-chairs of the National Growth Fund’s advisory Strategic Committee is also aimed at leveraging their management expertise to enhance the fund’s profitability.

Kim Jaeseung, a researcher at Hyundai Motor Securities, analyzed, "Most policy funds launched by previous governments performed well in the short term after their initial launch, but their investment returns declined over time and public interest quickly faded, leading to most of them being liquidated." He added, "The National Growth Fund will likely attract attention at first, but in the long term, it will need growth and performance to be sustained."