Sold Out Immediately After Launch but Lost Principal in Two Months... Will the September Relaunch Succeed Again?

People's Participation Growth Fund Records Negative Returns Amid Stock Market Plunge
Some Sub-funds Drop to Zero Value Despite Government Loss Coverage
Concerns Rise Over Second Subscription as Allocation for Low- and Middle-Income Investors Exp

Due to the sharp decline in the domestic stock market, the People Participation Growth Fund, a public participation fund launched in June, has entered a principal loss phase in less than two months since its launch. As the product has a five-year maturity, losses have not been finalized, but with the launch of a second fund worth 600 billion won scheduled for next month, some predict that the lackluster early performance could pose a burden to attracting investors.

On June 22, the first day of subscription for the People Participation Growth Fund, a notice about the sales termination due to quota exhaustion was posted at the Woori Bank headquarters branch in Jung-gu, Seoul. Photo by Yonhap News

According to the Korea Financial Investment Association on August 5, the public People Participation Growth Funds managed by Mirae Asset, Samsung Asset Management, and KB Asset Management had a net asset value of around 979 won as of the 4th, representing a decline of about 2% compared to the initial price of 1,000 won. On July 31, the loss rate had widened to as much as 3.9%, before partially recovering thereafter.

The People Participation Growth Fund is a policy-driven fund comprising 600 billion won from public funds and 120 billion won from government finances. It is part of the 20 trillion won scale People Growth Fund, and is designed so that ordinary citizens can also share in the benefits of investment in advanced strategic industries and their growth.

The fund is structured via a feeder-fund model, with Mirae Asset, Samsung Asset Management, and KB Asset Management establishing public mother funds, and 10 management companies operating daughter funds. The daughter funds are required to invest over 60% of their assets in companies related to advanced strategic industries, and over 30% in unlisted companies and KOSDAQ-listed technology-specialized firms.

In the event of losses, the government, as the subordinated investor, absorbs approximately 20% of the losses first. However, loss absorption is applied to each daughter fund individually, rather than broadly covering 20% of the total public fund's losses.

The initial underperformance is mainly attributed to the recent sharp decline in stock prices. Since the public funds' inception on June 12, the KOSPI has dropped by over 20% and the KOSDAQ by more than 24%. The lagging performance of daughter funds that heavily invest in unlisted and KOSDAQ firms is seen as a key factor dragging down overall returns.

An official at the Financial Services Commission explained, "The public fund’s returns reflect the government’s structure for absorbing subordinated losses," adding, "Out of the 10 daughter fund managers, the performance of 2–3 has been sluggish, which affected the average return."

In fact, the management performance of The J Asset Management, one of the daughter fund managers, recorded a return of -20%. Among the three funds it disclosed, one with a subscription amount of 7.7 billion won currently has a net asset value of zero.

Nevertheless, there is a prevailing view that it is premature to judge the fund solely on its two-month performance. The People Participation Growth Fund is a closed-end product with a five-year maturity, and because investments are focused on advanced strategic industries and unlisted companies, a significant period is required to recoup investments.

The issue lies in investor sentiment. Although the first fund offering, worth 600 billion won, sold out in just five days, recent stock market weakness has undermined confidence, raising doubts about whether the second fund of the same scale, set to launch next month, will enjoy similar success. It is especially burdensome for the government that about 40% of first-round subscribers were low-to-mid income earners with annual labor income of 50 million won or less. Although the government allocated a special share for ordinary citizens to broaden opportunities for asset building during times of stock market strength, the fund entered a loss phase immediately following its launch. The government plans to increase the portion of citizen-only allocations from the current 20% to 50% in the second round, but in the current market environment, it remains uncertain whether this allocation will be absorbed smoothly.

When the first fund gets listed on the Korea Exchange in September, there are also concerns that disappointment-driven sales may emerge despite tax benefits. However, given the low liquidity, it is unclear whether actual trading will occur.

An industry source commented, "The People Participation Growth Fund is meaningful in that it promotes productive finance and allows citizens to share in the growth of innovative companies," adding, "But despite the government’s loss compensation mechanism, the weak initial returns may mean the second round’s performance falls short of the first."

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