Gov't expected to create W6 tril. sovereign wealth fund through nonlisted shares of state firms

President Lee Jae Myung attends a briefing in Sejong, Friday. Yonhap

The Lee Jae Myung administration is planning to establish a government-run sovereign wealth fund aimed at supporting strategic growth industries, with investment returns intended to benefit the public, market watchers said Friday.

Led by the Ministry of Economy and Finance, the initiative aims to create a fund that will pursue aggressive strategies: investing in overseas megaprojects, supporting domestic artificial intelligence (AI) and semiconductor firms, and channeling state assets into long-term sources of national wealth. Comparable models include Singapore’s Temasek and Australia’s Future Fund.

However, concerns linger over inefficiencies in resource allocation and management, as existing government funds of over 2 trillion won ($1.3 billion) have yet to find suitable investment targets.

Questions also remain about whether the ministry-driven fund would be managed in a way that is meaningfully distinct from the 150 trillion won government-run growth fund launched Thursday.

Experts say the launch of the envisioned fund is likely to mobilize about 6 trillion won in government-owned nonlisted shares, a scale of investment that would inevitably give it significant influence across domestic stock, bond and alternative investment markets.

Government sources say the initiative is intended to create a “Korea-style Nvidia,” a key pledge from Lee’s campaign.

Lee’s vision is to build a next-generation AI tech firm with 70 percent of its shares held by the private sector and the remaining 30 percent by the public.

This, in his view, reduces the burden on taxpayers by generating shared national wealth through successful investments.

The ministry reportedly began reviewing the fund drive at the request of the presidential office. The Temasek model is widely regarded as the ideal benchmark.

Singapore’s commercially managed sovereign wealth fund grew to $654 billion, a 1,900-fold increase from $345 million in 1974.

Decades of strategic investment have included mergers and acquisitions, as well as expansion into international companies such as Visa, MasterCard, BlackRock and Tencent.

The government says the envisioned fund will be managed with a commercially oriented mandate, unlike the existing sovereign wealth fund, Korea Investment Corp., whose portfolio consists of the country’s foreign reserves and is largely constrained by a conservative management approach.

The ambition is understandable, but the likelihood of tangible results remains uncertain, according to Lee In-ho, former economist at Seoul National University.

“Korea’s public-funded investment funds historically have poor records, due to issues of inefficiencies in commercial decision-making, talent acquisition difficulties and political interference.”

Korea’s Temasek-style success remains far out of reach unless the country undertakes radical reforms, revising the current seniority-based remuneration system into a performance-based one, he said.

“Singapore is run by different rules than Korea. Public servants there are held to stringent rules of accountability and are rewarded accordingly. Also, the fund lacks specifics as to how it intends to foster innovation.”