South Korea to launch second 'People's Growth Fund' worth 600 billion won

South Korea will launch a second round of its People's Participation Growth Fund in the third quarter, with a total size of 600 billion won.

Financial Services Commission Chairman Lee Eok-won made the announcement Friday at a meeting with fund managers at the Korea Financial Investment Association in Yeouido, Seoul. "We will launch the second fund so that it can respond to public demand and contribute to a great economic leap through productive finance," he said.

As in the first round, the government will inject 120 billion won ($78.6 million) in subordinated fiscal capital. The FSC said the second fund can be launched in the third quarter without a supplementary budget by drawing 40 billion won from the 150 billion won direct investment budget and 80 billion won from the 400 billion won infrastructure investment budget.

The mother fund managers and public offering fund managers will remain the same as in the first round. Sub-fund managers, who handle actual investment operations, will be newly selected.

Sales-related matters — including allocation for lower-income investors and the share of online sales — will be revised based on the first fund's sales performance and feedback gathered from banks and securities firms.

Incentives will also be strengthened to enhance manager accountability and boost returns. President Lee Jae-myung had earlier directed officials at a Cabinet meeting last month to develop measures to improve returns for participating fund managers.

Sub-fund managers are currently required to contribute at least 1 percent of the fund's total committed capital in subordinated form. If the fund's cumulative return exceeds 30 percent over five years, managers can receive 12 percent of the excess as a performance fee. That rate rises to between 16 and 20 percent if managers allocate at least 40 percent each to new investments in unlisted companies and Kosdaq technology-exception listed firms, and to investments in regions outside Greater Seoul.

To boost returns, the FSC will allow sub-funds to invest up to 40 percent at their own discretion and permit the use of Kosdaq venture funds. Performance will be monitored through monthly and quarterly reports.

The FSC plans to have Korea Growth Finance designate top-performing managers each year and give them preferential treatment when participating in follow-on and policy funds. The commission also intends to require asset management reports to disclose individual sub-fund returns — in addition to public fund returns, the top 10 holdings per sub-fund and their investment weightings — to foster competition among managers.

When selecting sub-fund managers, the FSC will also review incentive structures for key investment personnel to prevent talent attrition.

"Fund managers must manage the public's assets well and deliver strong results," Lee said. "Please do your best to generate the highest possible returns by leveraging your expertise and foresight."

The first fund sold out in five days, and investment operations are set to begin Monday.

The government had originally planned to launch 600 billion won worth of People's Participation Growth Fund each year, building up to 3 trillion won over five years. The first tranche sold out last month, driven by benefits including an income deduction of 10 to 40 percent on invested amounts, a separate tax rate of 9.9 percent on dividend income, and loss compensation of around 20 percent. The second tranche is being released early in response to that demand.

"There is strong public demand, so in a sense we are releasing next year's tranche early," an FSC official said. "We will continue to offer the People's Participation Growth Fund next year as well."