South Korea to launch sovereign wealth fund under KIC with over $15 billion initial capital

South Korea is set to establish a "Korean-style strategic sovereign wealth fund" to make long-term investments in strategic industries, adopting a model similar to Singapore's Temasek. The fund will be managed as a distinct account within the Korea Investment Corporation (KIC), with an initial capital exceeding 20 trillion won (approximately $15 billion USD).

This initiative marks a shift from the government's earlier plan in January to establish a new, independent sovereign wealth fund. The decision to utilize the KIC leverages its existing network and international standing as South Korea's sole sovereign wealth management institution, which primarily manages foreign exchange reserves entrusted by the government and the Bank of Korea for overseas investments.

To ensure the fund's independent operation, the government has pledged not to interfere in day-to-day or individual investment decisions. Instead, the Ministry of Economy and Finance Minister will participate as a member of the KIC's steering committee, which will set the broad strategic direction for investments in key industries. The committee will also be expanded to include three private sector experts in strategic industries.

Within the KIC's board of directors, which oversees investment decisions, specialized executives will be appointed to manage the strategic investment account. The board will also feature separate investment, investment advisory, and risk management committees dedicated to the strategic investment arm. This structure aims to ensure professional and robust decision-making processes.

The fund's capital will be sourced from government contributions, donations, and operating profits. The initial capital of over 20 trillion won will be formed by injecting assets from state-owned banks like the Korea Development Bank, Export-Import Bank of Korea, and Industrial Bank of Korea, along with approximately 4 trillion won in in-kind stock contributions. Future investment resources will be continuously reviewed. Assets and profits generated by the strategic investment account will be reinvested, distributed to the government as dividends, or returned to the national treasury, with tax exemptions being pursued for operating profits.

Investment targets include domestic strategic and key industries, as well as overseas supply chains. The fund will employ a strategy of direct equity investment, exercising voting rights proportional to its shareholding to foster corporate growth and enhance investment performance. Unlike traditional loans or guarantees, the fund will engage in long-term direct equity investments without setting specific maturity or liquidation periods. Collaboration with domestic policy funds, such as the Mother Fund and National Growth Fund, and global institutional investors will also be pursued, with plans to identify and continue investing in promising companies upon the liquidation of other funds.