"National Growth Fund's Venture Investments Should Be Managed with Long-Term Indicators"

Concentration of Investment in a Few Companies May Inflate Valuations
Policy Fund Surge Could Increase VC Moral Hazard
"Gradual Adjustment of Capital Injection and Redesign of Performance Indicators Needed"

There have been recommendations that, for the National Growth Fund to effectively revitalize the venture market, the scale of capital injected into the market should be adjusted and performance evaluations should be designed around long-term indicators.

On the 11th, at the Korea Development Bank in Yeouido, Seoul, key attendees including Eogwon Lee, Chairman of the Financial Services Commission, Jungjin Seo, Chairman of Celltrion, and Hyunju Park, Chairman of Mirae Asset, performed a commemorative ceremony for the launch event of the National Growth Fund Strategy Committee meeting. 2025.12.11 Photo by Dongju Yoon

Recently, Nam Jae-woo, policy chief of pension and fund policy at the Korea Capital Market Institute, made these suggestions in a report titled "Implications of Policies to Revitalize the Venture Investment Market through Private Capital Inflow."

Nam stated, "Government policies being promoted in various ways can be expected to create a synergistic effect as a kind of policy package from the perspective of market supply and demand." However, he also noted, "If fund formation is concentrated at once and a competitive operating environment emerges, it means that it will become more difficult for general partners (GPs) to secure quality investment opportunities." In other words, an oversupply of capital could lead GPs to engage in excessive competition.

He also raised the possibility that the concentration of capital supply on a small number of deep-tech venture companies could cause their valuations to surge rapidly. Nam explained, "Such an increase in valuation may initially be perceived as investment activation, but if it leads to failures in subsequent fundraising rounds or delays in exits, it can result in deteriorating fund performance and capital inefficiency. As policy funds become more abundant and loss-buffering structures are strengthened, the risk of moral hazard among venture capitalists also increases."

To address these issues, Nam suggested: ▲ Gradually adjusting the scale of capital injected into the market ▲ Linking annual execution targets to quality investment opportunities ▲ Designing performance evaluation indicators for policy fund investments to focus on long-term returns and risk management, rather than short-term execution rates ▲ Strengthening the infrastructure for exit markets.

The venture capital industry also agreed that policies should be pursued in a way that encourages market autonomy. An industry insider said, "Government-led funds usually have predetermined investment ratios for their main objectives, making it difficult to respond to rapidly changing market trends and defend returns. If operators are given as much autonomy as possible in choosing sectors or stages, they can more flexibly discover growth companies, which in turn will attract private limited partners (LPs) to participate."

It was also pointed out that long-term policies are needed for capital to reach venture capital firms investing in early-stage startups. A representative from the early-stage investment VC sector said, "In the case of policy funds, investor protection measures will be very strict, so investments will inevitably focus on areas where concrete results have already been achieved. However, as time passes, assets grow, and exits occur, the structure allows for reinvestment, so at that point, early-stage startups may also be included."

Another industry insider noted, "Venture funds are illiquid assets that take at least seven years from investment to exit, so the key issue is how well individual investors, for whom liquidity is important, understand and participate in this. In the case of early-stage investments, this is a high-risk capital area, so if public funds are attracted simply based on prospects for promising companies, large-scale complaints could arise in the event of losses. Therefore, a proper understanding of these risks is essential."

This content was produced with the assistance of AI translation services.