The government is pushing to launch a "strategic sovereign wealth funds" through the Korea Investment Corporation (KIC) starting next year. It will make long-term equity investments with no maturity in domestic advanced industries, materials, parts and equipment, nuclear power, key industries, as well as overseas supply chain corporations. It also plans to participate in management by exercising voting rights proportional to the equity held in the invested corporations.
The government held an economic ministers' meeting on the 31st and discussed the "Korean-style strategic sovereign wealth funds introduction plan."
The Korean-style strategic sovereign wealth funds will be set up within the Korea Investment Corporation (KIC). KIC is Korea's only sovereign wealth funds, established in 2005, and has invested overseas based on foreign exchange reserves. Separate from the existing "entrusted account" that manages foreign exchange reserves, the plan is to create an independent "strategic investment account" to invest separately in strategic industries at home and abroad.
A government official said, "Initially we also discussed establishing a new institution, but we judged that leveraging the expertise and networks KIC has built up over the years is more is meaningful."
The initial capital will be 20 trillion won + α (alpha). It will be funded by public institution shares held by the government—such as Korea Development Bank, The Export-Import Bank of Korea, and Industrial Bank of Korea (IBK)—worth about at least 16 trillion won, and shares paid in kind in lieu of inheritance and gift tax, worth about 4 trillion won. Cash-like resources available for direct investment at launch are expected to be about 600 billion won. The government has also left open the possibility of using part of a future response fund to be created based on additional tax revenue as resources for the sovereign wealth funds.
Fields such as AI (artificial intelligence), robotics, defense, semiconductors, biotech, energy, materials, parts and equipment, aviation, space, quantum, content, software (SW), security, and finance such as banking and insurance are expected to be investment targets.
A government official said, "We plan to provide long-term investment capital without setting a separate maturity or liquidation point," adding, "It will be a form of direct equity investment, not loans or guarantees."
Based on this, it will also push for management participation by exercising voting rights corresponding to the equity held in the invested corporations. A government official said, "For now, we are thinking of something like the National Pension Service's stewardship code," adding, "If engagement befitting a strategic investor is needed, we will enable it."
Operating revenue will be used only for ▲ reinvestment ▲ government dividends ▲ recovery to the treasury. For example, Singapore is said to cover 20% of its annual budget by paying up to 50% of the revenue generated by Temasek and GIC, which are sovereign wealth funds, to the government as dividends.
The government also believes the strategic sovereign wealth funds can, in the long term, play a role in reducing market shocks stemming from the National Pension Service's asset disposals. Once the National Pension Service's reserve fund peaks in 2053 and then begins to decline, the sovereign wealth funds would participate as an asset buyer to absorb market shocks, according to the plan.
Next month, the government will introduce a bill to amend the Korea Investment Corporation (KIC) Act to make this possible, push for passage in the National Assembly within the year, and begin full-scale operation of the strategic sovereign wealth funds from next year.