If the past year was a time to set direction, the time ahead is to prove it with results.
Lee Dae-hee, CEO of Korea Venture Investment Corporation, held a press briefing on the first anniversary of taking office at the Kensington Hotel in Yeouido, Seoul, on the 28th and stated accordingly. Until now, the Mother Fund had a strong character as a limited partner that forms funds based on government finances. The plan is to function as a "leverage platform" that uses government money as priming water to attract private capital.
Korea Venture Investment Corporation committed 2.2195 trillion won over the past year, leading to the formation of 4.4751 trillion won in funds, of which 3.0995 trillion won was actually invested. In the regional institutional sector, it created a 400 billion won fund of funds and is pushing a 450 billion won regional growth fund within the year.
◇ Bank money faces lower "entry barriers" to venture market… Financial Services Commission (FSC) eases rules
With the Financial Services Commission's interpretation recently resolving much of the regulatory uncertainty over policy funds, some say a path has opened for bank money to enter the venture market.
Banks, despite having large pools of money, had been cautious about investing in venture funds. If investment assets are assessed as higher risk, they must stack more capital. Because venture funds are often classified as high-risk assets depending on structure, the more they invested, the more it burdened their soundness indicators.
The Financial Services Commission (FSC) last month clarified the conditions for applying a 100% risk weight (RW) to policy funds through its interpretation of the Enforcement Regulations for Banking Supervision. It means that, for investments in policy funds that meet certain conditions, regulators will apply a lower risk assessment.
The scope of application also broadened. If it is a policy project pursued by the government, it is recognized regardless of whether it is legislated, and management through asset managers and regular inspections are regarded as "government supervision." Not only direct commitments but also structures that absorb part of the losses are recognized as "government support."
If these conditions are met, the risk weight that had been applied up to more than 400% depending on structure can be lowered to 100%. For banks, it means that even if they invest the same amount, their capital burden drops significantly.
Another change is the "commitment-based approach." Funds do not invest money all at once; they first sign a commitment saying they will invest going forward and then deploy capital sequentially. Previously, even uncalled commitments were reflected at a certain rate and counted as risky assets, but now, if the commitment limits eligible investments, the same criteria apply to those amounts. In other words, the capital burden, including future capital to be deployed, has become more predictable.
However, the special treatment is capped at 10% of a bank's capital. It applies only within a certain range. Given current investment scale, the market views the short-term constraint as limited.
◇ Twenty years of public lead… first test for a shift to private-led
Centered on Korea Venture Investment Corporation, the domestic venture investment ecosystem has grown over the past 20-some years with the government participating as an anchor investor to form funds, and private managers making the investments.
It was effective at first in growing a market short on private capital, but over time, some say reliance on public money increased.
There are also questions about investment criteria. A venture investment industry official said, "Private capital judges mainly on profitability and growth, but policy funds place importance on public interest and industry and regional allocation," and noted, "In this process, a gap with market logic can arise."
Korea Venture Investment Corporation has also revamped fund design to change this structure. After introducing the "LP First Step Fund" last year, it advanced it this year into the "LP Growth Fund" system.
At the core, the government co-invests and absorbs part of the losses. By creating a structure assessed as lower regulatory risk than banks investing alone, it has fostered an environment for private money to come in.
However, how much actual capital inflow will expand remains uncertain. While regulatory barriers have been lowered, investment decisions still depend on each financial institution's risk management standards and assessment of profitability.