State-backed AI fund draws cooler demand in second offering amid loss concerns
Summary
A government-backed AI fund began its second retail offering in Seoul on Wednesday with softer demand than the first round. Banks had sold about 10 percent of their allocations by midmorning, while the first offering sold out within five business days. The Financial Services Commission said the 600 billion won offering runs through Oct. 15 and is part of a 1.2 trillion won retail raise backed by the National Growth Fund program.
Key Facts
- The second retail offering totals 600 billion won, and the government will add 240 billion won in subordinated capital for a combined pool of 1.44 trillion won.
- The first offering was launched in May and sold out within five business days after first-day subscriptions reached about 87 percent of total allocations.
- As of Tuesday, the first funds run by Mirae Asset, Samsung and KB Asset Management had net asset values of about 1,005 won to 1,006 won, barely above the initial 1,000 won.
- The Kosdaq index fell from 1,161.13 on May 22 to 806.79 on Sept. 14, then closed Wednesday at 855.91.
- The Financial Services Commission reserved 300 billion won, or half of the second offering, for lower-income investors during the first week, compared with 120 billion won in the first offering.
First-offering fund barely above initial value after losses
Financial Services Commission Vice Chairman Kwon Dae-young subscribes to the second retail offering of the National Growth Fund at NH NongHyup Bank’s Government Complex Seoul branch, Wednesday. Courtesy of Financial Services Commission
A government-backed fund investing in emerging industries, including artificial intelligence (AI), began its second retail offering of 600 billion won ($443 million) Wednesday, with banks selling about 10 percent of their allocations by midmorning.
Demand was more subdued compared to the first offering, when some banks exhausted their allocations within two hours. The slower start appears to reflect losses suffered by the first fund and revised subscription rules that exclude previous participants.
The Financial Services Commission (FSC), the country’s top financial regulator, said investors can subscribe through banks and securities firms on a first-come, first-served basis until Oct. 15.
Designed to give individuals access to the government’s National Growth Fund program, the retail product aims to raise a combined 1.2 trillion won across two offerings. The government will contribute another 240 billion won in subordinated capital, which absorbs losses before retail investors’ capital, creating a total pool of 1.44 trillion won.
The National Growth Fund program was launched late last year as one of President Lee Jae Myung’s key economic initiatives to foster advanced industries, including AI, semiconductors, biotechnology, robotics and rechargeable batteries.
By 10 a.m., major banks had sold around 10 percent of their allocations. KB Kookmin Bank had sold about 9 percent of its 65 billion won allocation, the largest among the banks. Shinhan and Woori had each sold about 12 percent, while Hana’s sales rate was reportedly around 10 percent. NH NongHyup Bank, which had a smaller allocation, had sold 55 percent of its online allocation by about 9:40 a.m.
During the first offering in May, all allocations at the five major banks were snapped up on the opening day. Including subscriptions through securities firms, first-day sales accounted for about 87 percent of the total. The entire offering sold out within five business days.
That initial enthusiasm, however, has yet to translate into substantial investment gains. As of Tuesday, the first funds run by Mirae Asset, Samsung and KB Asset Management had net asset values of around 1,005 won to 1,006 won, barely above their initial value of 1,000 won in June.
Even those gains followed a difficult stretch. The stock market downturn drove net asset values as much as 3.9 percent below their initial level before a recent recovery brought them back above it. With early subscribers having experienced losses, distributors have held back from extensively promoting the second offering.
The losses were attributed mainly to a sharp retreat in the Kosdaq market, one of the fund’s main investment targets. The index reached 1,161.13 on May 22, the first offering’s opening day, but dropped to 806.79 on Sept. 14.
On Wednesday, it closed at 855.91, up 6.11 points, or 0.72 percent. Although it has regained some ground, it remains far below its level at the initial launch. KOSPI, meanwhile, ended the session at 6,838.04, down 32.77 points, or 0.48 percent.
Changes to eligibility and allocation may also explain the slower uptake in the second offering. Previous subscribers cannot invest again, while greater emphasis is being placed on attracting lower-income and younger participants.
The FSC reserved 300 billion won, or half of the total offering, for lower-income investors during the first week. That compares with 120 billion won, or 20 percent, in the first offering.
To qualify, investors must have annual earned income of 50 million won or less, or comprehensive income of 38 million won or less. Any portion left unsold after the first week will become available to all eligible investors in the second week.
Nevertheless, banks and regulators expect the offering to sell out, although it may take longer than the first offering. They also caution against assessing the fund’s performance over such a short period, saying its investments require a longer horizon.
“The fund would offer individuals a meaningful opportunity to share in the growth of future strategic industries while supplying companies in advanced strategic sectors with capital for expansion,” FSC Vice Chairman Kwon Dae-young said after subscribing to the fund.
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