Fund chief says stable supply to small firms trumps returns

"There must never be a situation where policy fund disbursements are delayed because money runs short at the very moment small and medium-sized enterprises need it. The stability of the fund supply to SMEs matters more than the rate of return."

The SME and Venture Business Creation and Promotion Fund — managed by the Korea SMEs and Startups Agency, or KOSME — received an "outstanding" rating, the highest grade, in this year's Ministry of Economy and Finance fund management evaluation, marking seven consecutive years at the top. It is the only fund among 25 evaluated to have achieved that distinction seven years in a row.

The fund, known as the KOSME fund, is the primary policy fund for channeling financing to small and medium-sized enterprises. Its assets stand at around 12 trillion won ($7.92 billion) this year. Unlike large pension funds that invest assets to generate returns, however, it manages standby capital — money held temporarily before policy funds are disbursed.

Lee Chang-seop, KOSME's managing director of planning and management, said in an interview Monday that pension-type funds such as the national pension and mutual aid associations make medium- to long-term investments to build up reserves for payouts decades away. "The KOSME fund, by contrast, is standby capital for carrying out SME support projects, which makes liquidity and stability the top priorities," he said.

The KOSME fund does not invest in risky assets such as shares or real estate. "Because this is policy capital where preserving principal is essential, we do not invest in risk assets such as shares or real estate," Lee said. "We manage the fund primarily through money market funds, commercial paper, electronic short-term bonds and short-term bond funds."

The fund posted a return of 3.21 percent in last year's evaluation period. Combined operating performance — pretax interest income plus end-of-period valuation gains — came to about 3.76 billion won. In absolute terms the return may appear modest compared with pension funds or mutual aid associations, but KOSME says the fund's investment purpose is fundamentally different.

"The KOSME fund is not designed to aggressively grow surplus money and maximize returns," Lee said. "The goal is to ensure policy fund disbursements proceed without disruption while managing spare funds safely."

He said the benchmark for sound fund management is not the rate of return but stable policy execution. "The most important thing is supplying funds without disruption when SMEs need them," Lee said. "Good management means rigorously forecasting cash flows to prevent shortfalls and managing surplus funds to generate reasonable returns without risking principal losses."

The fund adjusts its investment strategy depending on the direction of interest rates. When rates are rising, it shortens maturities to reinvest in higher-yielding products; when rates are expected to fall, it extends maturities to lock in existing rates.

"In a rising rate environment we can reduce loss risk while investing in higher-rate products, and in a falling rate environment we can get ahead of the curve by locking in current rates," Lee said. "We adjust duration flexibly depending on market conditions." The fund's dedicated asset management team numbers nine people.

"We have separated the asset management, risk management and performance evaluation functions to build a system of mutual checks," Lee said. "We have also brought in staff with professional qualifications such as the Financial Risk Manager certification to strengthen management expertise." He added that the fund has recorded no investment losses throughout its operations.

"We invest primarily in high-quality assets rated AA- or above and focus on short-maturity instruments," Lee said. "Because we put stability first, there have been no cases of significant losses." Interest rate volatility remains the fund's biggest variable this year, with a target return of 2.77 percent.