S. Korea to launch strategic sovereign wealth fund worth W20tr-plus through KIC

The government plans to establish a strategic investment account within the Korea Investment Corporation (KIC) to launch a homegrown "strategic sovereign wealth fund" worth 20 trillion won ($13.8 billion) or more.

The fund would position KIC as an anchor investor to attract foreign sovereign wealth funds and asset managers into Korea's strategic industries, channeling ultra-long-term direct investment into sectors such as AI and semiconductors to strengthen national competitiveness and lift the country's potential growth rate.

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol unveiled the plan Friday at a joint emergency economic council and economic ministers' meeting held at Government Complex Seoul, presenting the government's blueprint for a Korean-style strategic sovereign wealth fund.

The government cited growing interest from overseas investors in Korea's strategic industries following its recently announced three mega-projects in semiconductors, physical AI and AI data centers. With foreign sovereign wealth funds and pension funds making repeated inquiries about co-investment partners, the government said a platform was needed to channel that interest into domestic investment. The strategic sovereign wealth fund would serve as the anchor investor drawing that foreign capital into Korea's strategic sectors.

The fund is modeled on Temasek, Singapore's strategic sovereign wealth fund. Unlike Singapore, which operates Temasek and GIC — the fund managing its foreign exchange reserves — as separate entities, the Korean government opted to create a new strategic investment account within the existing KIC. The rationale is to leverage KIC's two decades of accumulated overseas investment networks and management expertise to get the fund up and running quickly.

To that end, the government plans to amend the Korea Investment Corporation Act to separate the existing foreign-reserve management account from the new strategic investment account, and to add "national wealth enhancement" and "strengthening strategic industry competitiveness" to KIC's founding mandate. A firewall will strictly separate foreign-reserve management from strategic investment operations.

Unlike the existing KIC, the new fund is a "strategic" sovereign wealth fund designed to supply patient, long-term capital to strategic industries. Where the current KIC operates as a savings-type fund managing overseas foreign-currency assets, the strategic fund will focus on strategic and foundational industries critical to national competitiveness and supply chain stability.

Target sectors span AI, robotics, semiconductors, defense, biotech, energy, materials, components, equipment, aerospace and quantum technology, as well as data centers, energy infrastructure, financial services and overseas supply chain companies.

Investment decisions will weigh industrial competitiveness and potential growth alongside financial returns. Direct equity stakes are the default approach, with management participation proportional to ownership permitted when necessary. By entering as an open-ended, ultra-long-term investor, the fund aims to guard against the overseas leakage of strategic technologies and hostile takeovers, while also leading co-investments with foreign sovereign wealth funds.

The government said the strategic sovereign wealth fund is also expected to help ease foreign exchange market volatility and absorb shocks to asset markets should the national pension fund begin large-scale asset disposals in earnest.

Funding will come from government equity contributions, grants, donations and investment returns. Initial capital of 20 trillion won or more will be assembled using approximately 16 trillion won in government stakes held by state-owned financial institutions — including Korea Development Bank, the Export-Import Bank of Korea and Industrial Bank of Korea — along with roughly 4 trillion won in shares received as payment in lieu of inheritance and gift taxes.

Initial liquid capital is expected to total around 600 billion won, with the government saying it will review options for additional contributions. Investment returns will be considered for reinvestment, government dividends or repatriation to the national treasury.

The government said it remains "open" to using a future-response fund or surplus tax revenues as funding sources. Specific financing arrangements have not yet been finalized, however, and will be determined through consultations with fiscal authorities during next year's budget formulation process.

Individual investment decisions will be made independently, separate from the government. The government will set only the broad investment direction for strategic industries through an operating committee and will not be involved in individual investment decisions. The strategic investment account's own board of directors will independently deliberate and approve specific investment targets and amounts. The fund will also add executives with expertise in strategic industries and establish dedicated investment, advisory and risk management committees for the strategic investment account.

The government said the strategic sovereign wealth fund will operate in a complementary relationship with existing policy funds such as the National Growth Fund. The plan envisions the fund acting as an anchor investor in co-investments with foreign sovereign wealth funds, pursuing collaborative investments with the National Growth Fund, and providing follow-on "relay investment" in promising companies after policy funds wind down to prevent gaps in funding.

The government plans to submit an amendment to the Korea Investment Corporation Act in August and push for its passage through the National Assembly by year-end, with the strategic investment account set to begin full operations next year. The move is intended to transform KIC into a comprehensive sovereign wealth fund managing both its existing savings-type and the new strategic-type mandates side by side.