[Policy Analysis] National Growth Fund

The 150 trillion KRW mega-scale policy finance initiative driven by the Lee Jae-myung administration, the 'National Growth Fund,' is set to launch in December 2025. Reminiscent of the past 'New Deal Fund,' this massive fund aims to foster high-tech industries such as AI and semiconductors. In this post, we cool-headedly analyze the fund's structure, pros and cons, and the opportunities and risks from an investor's perspective.

[Policy Analysis] National Growth Fund 150T Creation: Secrets of AI/Semiconductor Investment and Principal Protection Structure

1. What is the National Growth Fund?

The National Growth Fund is a policy-type fund that aims to raise a total of 150 trillion KRW over the next five years to invest in future core strategic industries with the goal of "South Korea's Economic Second Leap." The core purpose is to guide the abundant liquidity in the market away from real estate and towards Productive Finance.

This fund is the largest ever in scale, and the funding method is largely divided into two axes.

• Public Sector (75 Trillion KRW): Capital contributions from the Korea Development Bank and issuance of government-guaranteed bonds.
• Private Sector (75 Trillion KRW): Participation from the top 5 financial holding companies, pension funds, and general public participation (Public Offering Fund).

Particularly noteworthy is the introduction of the 'Citizen Participation Fund.' It is designed to open a path for the general public to invest small amounts in national strategic industries like AI or semiconductors and share in the results.

---

2. Where does it Invest? (Investment Targets)

The capital from this fund will not focus on simple stock market boosting, but on the 10 High-tech Strategic Industries that are South Korea's future growth engines.

🎯 Key Investment Sectors
: Artificial Intelligence (AI), Semiconductor, Bio, Secondary Battery, Display, Hydrogen, Future Mobility, Robot, Defense, Content (K-Culture)

The government plans to supply funds to Mega Projects and the venture/scale-up ecosystems of these industries to secure a 'super-gap' in technology and boost economic growth rates.

---

3. Core Structure: Government acting as a 'Shield'?

The most appealing part for investors is the stability mechanism. The National Growth Fund adopts a Subordinated Investment structure.

Category	Senior (General Public/Private)	Junior (Government/Public)
In case of Loss	Protected (Junior absorbs loss first)	First Loss Absorption
In case of Profit	Priority allocation of certain yield (Expected)	Enjoy excess profits

In other words, even if the fund incurs a loss, the government and public institutions bear that loss first. There is an effect of protecting the principal of general investors up to a certain level (e.g., -10% to -20%). This is a structure similar to the past 'New Deal Fund,' and serves as a powerful incentive to attract funds from citizens with strong risk aversion.

Additionally, tax benefits such as separate taxation on dividend income are being discussed, making it an attractive alternative in terms of real return (after-tax return).

---

4. Cold Analysis: Risks and Concerns

While the purpose and structure seem plausible, there are definitely points of concern. We must learn lessons from past cases.

Risk Factors:
1. Limits of Gov-Directed Finance: Although private experts (such as Chairman Park Hyeon-joo, Seo Jung-jin, etc.) have been recruited, government-led funds may inherently suffer from low efficiency in capital execution. If the focus is more on 'spending money' than discovering viable investment targets, there is a risk of mass-producing zombie companies.
2. Déjà vu of the New Deal Fund: The Moon Jae-in administration's New Deal Fund also started grandly, but the actual investment execution rate was low (around 18%). There were precedents where private funds were tied up or returns fell short of expectations due to a lack of suitable investment targets.
3. Market Distortion: If a massive sum of 150 trillion KRW is artificially concentrated in specific sectors (AI, Semiconductors, etc.), it could form valuation bubbles.

---

5. Conclusion: Look Before You Leap!

The National Growth Fund is a form in which the government creates a 'Low Risk' product to invite citizens into the 'High Risk' area of high-tech investment. For investors who want to pursue returns higher than stable deposit rates while reducing the risk of principal loss, it is certainly not a bad option.

However, rather than investing blindly because "the government guarantees it," it is wise to carefully examine the portfolio composition of the Sub-Funds and the capabilities of the asset managers after the fund is actually formed before entering. The validity period of a policy may equal the term of a regime, but the validity period of your assets is a lifetime.

The content of this blog is for reference only for investment judgment, and investment decisions must be made under the individual's judgment and responsibility. In no event shall the information in this blog be used as evidence of legal liability for investment results.