Presidential hopefuls' 'policy funds' draw lukewarm response from investors
Banners of People Power Party's presidential candidate Kim Moon-soo, Democratic Party's Lee Jae-myung and Reform Korea Party's Lee Jun-seok hang in Seoul, May 12. Yonhap
Skepticism lingers over the two major presidential hopefuls' move to introduce “policy funds,” a government-backed investment scheme financed by retail investors, businesses, publicly managed funds and pension funds, market watchers said Tuesday.
They say the repetitive, short-term scheme regularly resurfacing as a key campaign pledge every election cycle undermines effective, rigorous review and management of capital, and fails to bring high returns.
Under particular threat will be the healthy operation of the National Pension Service (NPS) whose priority should be bolstering returns for retirement security over advancing political agendas.
“The drive is more likely than not to repeat the past, as evidenced by history,” said Lee In-ho, former chair of Korea Economic Association and an economist at Seoul National University.
The popularity of the government-led investment funds soar at the beginning of any administration. However, it wanes quickly thereafter, according to the professor.
“Almost all previous buyers of the funds were unable to generate strong income. They are to bear the full brunt of the weak investment outcomes, since no one takes responsibility when the funds fail," Lee said.
Indeed, the buyers of KB Kookmin Bank-managed New Deal Fund, spearheaded under the previous Moon Jae-in administration, registered an annual loss of 1.63 percent over the past year. A similar product managed by state-run lender Industrial Bank of Korea reported an annual loss of 0.85 percent.
Green growth and unification-themed funds from the previous Lee Myung-bak and Park Geun-hye administrations also failed to generate gains.
Even more problematic is a potential bypass of fund operational criteria review, a critical step for long-term institutional investors, including the pension funds, according to an industry official who spoke on condition of anonymity.
“Mobilizing NPS means the retirement savings of many will be put at risk. Who with respectable investment or governance principles would agree to funding political projects that are almost certain to be short-lived with low returns?” the official said.
The slew of criticisms followed the announcement of plans by Democratic Party of Korea presidential candidate Lee Jae-myung and People Power Party candidate Kim Moon-soo.
They pledged to establish investment funds to nurture the artificial intelligence (AI) industry.
Lee said the envisioned fund will draw the participation of the public, whereas Kim’s plan centers on public-private partnership with input from global entities.
Lee’s plan included elevating Korea as a global AI powerhouse by nurturing the sector as a new growth driver.
Kim pledged hefty investment in the AI value chain to achieve the same goal. He said he would train 200,000 young AI experts and establish a high-tech AI convergence center.
Kim’s plan to set up the 100 trillion won ($71 billion) public-private fund will draw on his past experience as Gyeonggi governor. At the time, he attracted investment from Samsung Electronics to build a semiconductor plant in Pyeongtaek.