From 'Dollar Reserves' to a 'National Savings Account'... Blueprint for Korea-Style Temasek Unveiled

"Even a Three or Four-Year Delay Could Miss the Opportunity" — Speed Is Essential
Success Depends on Independent Governance Free from Political Influence

The government's decision to establish a dedicated institution to manage the sovereign wealth fund reflects a growing recognition that, amid intensifying global competition for leadership in cutting-edge technologies, a proactive national role has become essential. Overseas, there is already a surge in the creation of new sovereign wealth funds. Particularly in Middle Eastern countries and emerging Asian economies, there is a significant increase in sovereign wealth funds focused on investing in national strategic industries such as artificial intelligence (AI) infrastructure and natural resource development. Indonesia's sovereign wealth fund, Danantara, was launched last year with a scale of 900 billion dollars after merging seven state-owned enterprises. Meanwhile, the Qatar Investment Authority has established a joint venture worth 20 billion dollars with Brookfield to invest in AI infrastructure. The combined assets under management of global sovereign wealth funds and public pensions are expected to expand from 43 trillion dollars this year to 59 trillion dollars in four years.

Koo Yoonchul, Deputy Prime Minister and Minister of Strategy and Finance, spoke to investors about the Korean economy at the 'London Korea Economic Investment Roadshow (IR)' held on the 18th (local time) at the Embassy of the Republic of Korea in London, UK. Ministry of Strategy and Finance

Benchmarking Strategic Sovereign Funds Like Temasek... Turning Corporate Growth into National Wealth

In late March, the Strategic Economic Division under the Ministry of Economy and Finance's Office for Innovation and Growth visited Singapore for four days. The purpose was to meet directly with Singapore’s Ministry of Finance, Temasek—which serves as a model for the Korea Future Investment Corporation—and global investment firms, in order to discuss Temasek’s establishment and operational experience related to building a Korean-style sovereign wealth fund. Singapore operates a dual-track sovereign wealth fund model: the Government of Singapore Investment Corporation (GIC), which serves as a financial investor and acts as a key buffer against external economic shocks, and Temasek, a strategic investor that takes on the role of a corporate shareholder for nurturing domestic industries and securing access to vital overseas technologies. Temasek, the role model for the Korea Future Investment Corporation, is a government-owned holding company 100% owned by the Ministry of Finance in Singapore. Despite lacking resources such as crude oil, it has grown Singapore’s sovereign wealth fund into one of the world’s top 10. Its assets under management, which stood at only 300 million Singapore dollars at its establishment in 1974, had increased to 490 billion Singapore dollars as of the end of last year.

The government’s move to establish a new corporation, separate from the existing Korea Investment Corporation (KIC), stems from the belief that a ‘strategic’ sovereign wealth corporation is needed to bolster industrial competitiveness and national strategy. The goals of the Korea Future Investment Corporation are clearly distinct from those of the KIC. The KIC manages a portion of the foreign exchange reserves that must be mobilized immediately in times of crisis, which leads it to invest conservatively in highly creditworthy and liquid assets such as U.S. Treasury bonds. Unlike KIC, which focuses on defending against external shocks, the government envisions transforming the Korea Future Investment Corporation into a ‘national strategic industry investor’ by pursuing M&A and equity investments in promising companies in AI, robotics, and biotechnology. While the Korea Future Investment Corporation will initially focus on domestic investments, it plans to expand into overseas investments as needed, and will enable indirect investment to identify companies suitable for direct long-term investment. It is reported that Temasek, for instance, reviews its initial investment decisions on the assumption of exiting after five to seven years, but there are also many cases where it holds stakes semi-permanently for more than ten years. The aim is not simply to be a strategic investor, but to ensure that corporate growth is translated into national wealth.

A National 'Savings Account' for Difficult Times... Success Hinges on Governance

Another factor behind the government’s push to establish a new corporation is the need for a national ‘savings account’ to prepare for the future amid ongoing fiscal deficits. In Singapore, which the government has benchmarked, up to 50% of sovereign wealth fund earnings are returned to the government in the form of dividends, accounting for 20% of its annual budget. Although Korea’s managed fiscal deficit has ballooned to about 100 trillion won a year since the pandemic, the government believes it is imperative to secure a 'savings account' for future generations before it is too late. Instead of spending the massive windfall tax revenues generated during the semiconductor supercycle on short-term expenditures, the government plans to inject them into the sovereign wealth fund, recycling the returns and investment profits back into national finances and the ecosystem of promising industries.

The government sees now as the ideal time to launch a sovereign wealth fund, given heightened investment demand and interest in Korean companies due to the semiconductor, defense, and K-culture sectors. Lighthouse Canton, a global investment firm based in Singapore, reportedly told the Ministry of Economy and Finance that “foreign investor interest in Korea is so high right now that if we wait just three or four years, this opportunity may be lost.” Capital from the Middle East and elsewhere, with limited destinations, is flowing into Asian markets, but corruption issues in Southeast Asia and political instability in China are making it difficult to find suitable investment targets. The government expects that, after launching the new corporation, collaboration with overseas sovereign wealth funds such as Temasek and Danantara will contribute to the overseas expansion and growth of domestic companies. A government official stated, “Just having a sovereign wealth fund with networks across diverse industries and companies at home and abroad invest in a company can help its growth,” and added, “We are considering ways to promote collaboration with overseas sovereign wealth funds after the establishment of Korea’s fund.”

The key to the success of the sovereign wealth fund lies in securing governance (structure) that is free from political influence. A financial investment industry insider commented, “It must not be seen as a reemployment channel for retired bureaucrats who lack proven competence. The board should prioritize professionals with verifiable experience in investment, asset management, and risk management, and even public officials should be appointed based on a track record of achievements in the private sector and independent judgment.”

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