[Public Voices]What Are the Challenges for Successful Implementation of the National Growth Fund Management Plan?

WTO Sanctions Possible When Supporting Mid-Sized and Large Companies
Fund of Funds Structure Preferable to Direct Investment
Establish Strict Internal Controls and Compliance Monitoring
Equity Investment Recommended for High-Risk, High-Retu

Chisung Song, Professor of Business Administration at Wonkwang University

On December 16 of last year, the government announced the "2026 National Growth Fund Management Plan." The National Growth Fund aims to foster strategic high-tech industries by securing more than 30 trillion won annually, totaling 150 trillion won over five years, to be used for direct investment, indirect investment, infrastructure investment and financing, as well as loans. In short, it is a mammoth-scale initiative.

The decision-making organizational structure is as follows. An Investment Review Committee is established for practical review of individual investment cases, and the final decision on whether to inject fund resources into each investment is made by the Fund Management Deliberation Committee. There is also a Secretariat to provide operational support. However, there is no mention of any management structure responsible for post-investment corporate monitoring, advisory services, or internal controls after investment decisions are made.

Let us briefly review how investments and funding for high-tech industries or technology companies, similar to those targeted by the National Growth Fund, have been carried out thus far. First, companies can be classified by size into small and medium-sized enterprises (SMEs) and mid-sized or larger companies. For SMEs, policy financial institutions such as the Korea SMEs and Startups Agency, Korea Technology Finance Corporation, and Korea Credit Guarantee Fund are mainly responsible for providing capital. In contrast, mid-sized and larger companies are served by the Korea Development Bank, which handles industrial policy funds, and private commercial banks. Second, investments and loans are classified according to the business risk profile of the supported companies. High-risk venture technology companies are mainly supported through investment methods and technology guarantees, while traditional manufacturing firms with lower business risk are supported through loans or guarantees. Accordingly, whether to provide investment or loan support to mid-sized or larger companies is determined independently by private financial institutions, and these companies are excluded from the SME policy finance support system.

Based on my experience of nearly 20 years researching and advising on SME policy finance and venture capital, I would like to propose several suggestions for ensuring the successful establishment of the National Growth Fund.

First, there must be a thorough preliminary review of potential conflicts with WTO regulations. Although the National Growth Fund management plan mentions support for all SMEs and technology companies, it appears likely to focus on mid-sized or larger companies. If the target were SMEs, it would suffice to expand the policy objectives and supplement the funding within the existing SME support finance system or vehicles. International practice has been to exempt government support for SMEs from WTO regulations, but fiscal support for mid-sized or large companies may be subject to WTO sanctions. The government must prepare for this in advance.

Second, the government must respect the market. The market should lead direct and indirect investment industries, with government policy serving as support. The National Growth Fund should not duplicate the role of the Korea Venture Investment Fund of Funds, the Korea Growth Investment Corporation's Growth Finance Fund, or private venture capital firms.

Third, fund management must be accompanied by expertise and transparency in investment review, as well as post-investment corporate monitoring and advisory capabilities. For policy funds involving government resources, a fund of funds structure is preferable to direct investment. This not only reduces investment risk associated with direct investment, but also lessens the burden of ongoing management monitoring and business and technical advisory services for portfolio companies. Furthermore, in indirect investment, fund formation leverage is typically two to three times higher than in direct investment, enabling greater capacity to provide funding to companies.

Fourth, in the management system for direct and indirect investments, it is impossible to overemphasize the need to establish strict internal controls and compliance monitoring systems to prevent insider trading at the review stage, ensure operational transparency, and manage risk.

Fifth, for industries with high risk and high returns, equity investment is preferable to loans. While loans may be suitable as follow-up support after direct investment, providing loans to early-stage technology companies before equity investment poses significant risks of insolvency for both the supported companies and the funding institutions. Direct investment using government funds can be described as a "government-led approach." If direct investment is truly necessary, it should be limited to sectors that indirect investment tends to avoid but are inevitably in demand from an industrial policy perspective. It is worth recalling, before it is too late, the history and reasons why Dasan Venture, which made direct investments in 2000, transitioned to a private sector-led fund of funds model in 2005.

I hope the National Growth Fund will serve as a catalyst for small and venture businesses to become the growth engine of the Korean economy.

Chisung Song, Professor of Business Administration at Wonkwang University