[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

On December 16 of last year, the government announced the “2026 National Growth Fund Management Plan.” The National Growth Fund is designed to secure over 30 trillion won each year for five years, totaling 150 trillion won, to nurture strategic high-tech industries through direct investment, indirect investment, infrastructure equity and debt investments, 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 individual investment case reviews, while the final decision on whether to allocate fund resources to each case is made by the Fund Management Review Committee. There is also a Secretariat to provide administrative support. However, there is no mention whatsoever of an operational organization responsible for post-investment management oversight, advisory services, or internal controls for supported companies after investment decisions are made.

Let us briefly examine how investments and funding for high-tech industries and technology companies, which are similar in nature to the objectives of the National Growth Fund, have been conducted thus far. First, companies can be categorized by size: small and medium-sized enterprises (SMEs) versus mid-sized and larger companies. For SMEs, funding is mainly provided by policy finance institutions such as the Korea SMEs and Startups Agency, Korea Technology Finance Corporation, and Korea Credit Guarantee Fund. In contrast, for mid-sized and larger companies, the Industrial Bank of Korea, which handles industrial policy funds, and private commercial banks are responsible. Second, investments and loans are classified according to the business risk profile of supported companies. Venture technology firms with high business risk are mainly supported through investment and technology guarantees, whereas traditional manufacturers with lower business risk are supported through loans or guarantees. As a result, for investment or loan support targeting mid-sized and larger companies, private financial institutions make their own independent decisions, and these companies are excluded from SME policy finance support programs.

Based on my nearly 20 years of research and policy advising on SME policy finance and venture capital, I would like to suggest several ways to ensure the successful implementation of the National Growth Fund.

First, it is necessary to thoroughly review potential conflicts with WTO regulations in advance. Although the National Growth Fund management plan refers to support for SMEs and technology companies overall, it appears likely that mid-sized and larger companies will be the main beneficiaries. If the target were SMEs, it would be sufficient to simply expand the policy objectives and supplement the resources of existing SME support finance systems or vehicles. International practice has been to exempt government support for SMEs from WTO regulations, whereas financial support for mid-sized and large companies may be subject to WTO sanctions. The government must be prepared for this in advance.

Second, the government should respect the market. The market should lead direct and indirect investment industries, with government policy providing support. The National Growth Fund should not seek to duplicate organizations such as 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 review, as well as by post-investment management oversight and advisory capabilities. For policy funds backed by government resources, a fund-of-funds structure is preferable to direct investment. This reduces investment risks from direct investments and lessens the ongoing management oversight and technical advisory burdens associated with investee companies. In addition, indirect investments generally offer 2-3 times greater leverage in fund formation compared to direct investments, increasing the capacity to provide financial support to companies.

Fourth, it cannot be overemphasized that in both direct and indirect investment management systems, strict internal controls and compliance monitoring must be established to prevent insider transactions during the review stage, ensure operational transparency, and manage risk.

Fifth, for industries characterized by high risk and high return, equity investment is preferable to lending. While loans may be appropriate as follow-up support after direct investment, providing loans before equity investment—particularly to early-stage technology companies—poses a significant risk of defaults for both the supported companies and the financing institutions. Direct investments funded by government resources can be described as “government-led.” If direct investment is unavoidable, it should be limited to fields shunned by indirect investors but which are indispensable from an industrial policy perspective due to inevitable demand growth. We should not forget the precedent set in 2000, when Dasan Venture made direct investments, and the subsequent shift to a privately led fund of funds model in 2005, along with the reasons for this transition, before it is too late.

I hope that the National Growth Fund will serve as a powerful catalyst to help SMEs and venture companies become the growth engine of the Korean economy.

Professor Chiseung Song, Department of Business Administration, Wonkwang University

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