[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 raising more than 30 trillion won annually over five years, totaling 150 trillion won, to be used for direct investment, indirect investment, infrastructure investment and lending, and loans. In short, it is a mammoth-scale initiative.

The decision-making organizational structure is as follows: an Investment Review Committee is established for individual investment case evaluations, and the Fund Management Deliberation Committee makes the final decision on whether to allocate funds to each investment. A secretariat is also in place to provide administrative support. However, there is no mention of an operational organization responsible for post-investment management oversight, advisory services, or internal controls for supported companies after the investment decisions have been made.

Let us briefly review how investments and funding for high-tech industries and technology companies-areas similar to those targeted by the National Growth Fund-have been conducted so far. First, companies can be categorized by size, either as small and medium-sized enterprises (SMEs) or as mid-sized and larger companies. For SMEs, policy financial institutions such as the Small and Medium Business Corporation, the Korea Technology Finance Corporation, and the Korea Credit Guarantee Fund primarily provide funding. In contrast, for mid-sized and larger companies, the Korea Development Bank, which handles industrial policy funds, and private commercial banks are responsible. Second, support is classified by the business risk profile of the recipient companies, distinguishing between investment and lending. For high-risk venture technology companies, support is mainly provided through investment and technology guarantees, while for traditional manufacturing companies with lower business risk, support is offered through loans or guarantees. As a result, whether to provide investment or lending support to mid-sized and larger companies is determined independently by private financial institutions, and these companies are excluded from the SME policy finance support system.

Based on nearly 20 years of my own research and policy advisory work on SME policy finance and venture capital, I would like to propose several recommendations for the successful establishment of the National Growth Fund.

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

Second, the government should respect the market. The market should lead direct and indirect investment in industries, and government policy should support this. The National Growth Fund should not duplicate the roles of the Korea Venture Investment Corp.'s Fund of Funds, Korea Growth Investment Corp.'s Growth Finance Fund, or private venture capital firms.

Third, fund management must be accompanied by expertise and transparency in investment reviews, as well as post-investment management oversight and advisory capabilities. For policy funds that use 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 oversight and business and technical advisory responsibilities for portfolio companies. Moreover, in indirect investment, the leverage for fund formation is typically two to three times higher than in direct investment, thus increasing the capacity to provide funding to companies.

Fourth, in both direct and indirect investment management systems, it is essential to establish strict internal controls and compliance monitoring systems to prevent insider trading during the review stage, ensure operational transparency, and manage risk. This cannot be emphasized enough.

Fifth, for industries characterized by high risk and high returns, equity investment is preferable to lending. While loans may be appropriate as follow-up funding after direct investment, providing loans to early-stage technology companies before equity investment poses a high risk of insolvency for both the supported company and the funding institution. Direct investment using government funds can be described as a "government-led approach." If direct investment is absolutely necessary, it should be limited to areas where indirect investment is avoided and where there is an unavoidable need to boost demand from an industrial policy perspective. It is worth recalling, before it is too late, the history and reasons why Dasan Venture, which engaged in direct investment in 2000, transitioned to a private sector-led fund of funds model in 2005.

I hope that the National Growth Fund will serve as a catalyst to drive AX, enabling small and medium-sized venture companies to become the growth engine of the Korean economy.