'The Curse of Control Funds' Will It Be Broken This Time?

Fizzling Out 'Green and Unification Funds'
Even the 'Winning Korea Fund' with '56% Annual Return' Cannot Guarantee Success

The "Policy-type New Deal Fund" announced by the government on the 3rd

[Asia Economy Reporter Joo Sang-don] The 'Korean New Deal Fund' announced by the Moon Jae-in administration on the 3rd is the second policy fund following last year's 'Winning Korea Fund,' which was launched in response to Japan's export restrictions. It is a so-called 'government-guided fund' used as a means to attract private interest and raise capital to maximize policy effects. Although previous administrations also introduced government-guided funds, since these were not funds voluntarily created by the market, their returns have varied widely. Investing in a national project fund does not necessarily guarantee profits. Another issue is the sharp decline in returns after a regime change.

According to NH-Amundi Asset Management on the 3rd, as of the 30th of last month, the 'Winning Korea Securities Investment Trust [Stocks]' posted a 3.1% return over the past week, surpassing its recent one-month return of 1.7%. The Winning Korea Fund mainly invests in domestic companies in the materials, parts, and equipment sectors that were hit by export restrictions, and was also called the 'So-Bu-Jang Fund' (Materials, Parts, and Equipment Fund). It was established on August 14 last year, triggered by Japan's trade retaliation on materials, parts, and equipment. It drew attention as President Moon Jae-in and Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, subscribed to it. The one-year return since its inception reached 56.12%, about 2.5 times the KOSPI's rise of 22.11% over the same period. It is estimated that President Moon's profit from investing 50 million KRW when the return was -1.15% compared to the launch date is close to 30 million KRW.

Not all government-guided funds have seen such returns. The 'Green Fund' under the Lee Myung-bak administration and the 'Unification Fund' under the Park Geun-hye administration are representative examples. Former President Lee Myung-bak presented 'Low Carbon Green Growth' as a national vision in his Liberation Day speech in 2008, his first year in office. In February of the following year, he launched the Green Growth Committee directly under the president. Subsequently, 42 related fund products were launched by 2012. In 2009, related funds even posted average returns approaching 58%. However, after the regime changed, most funds experienced capital outflows due to poor returns starting around 2014. The fund size, which once reached 300 billion KRW, shrank to 191.7 billion KRW as of August 2020. The number of funds, which was over 50, dropped to only 17.

The 'Unification Fund' led by the Park Geun-hye administration also saw its returns plummet over the past year as inter-Korean relations froze. After former President Park's remark in the January 2014 New Year's press conference that 'Unification is a jackpot,' unification funds launched by asset management companies sharply declined in returns following the closure of the Kaesong Industrial Complex in 2016. For example, the 'Shinyoung Marathon Unification Korea Fund,' a leading unification fund, had nearly 50 billion KRW in assets in 2014 but now stands at about half that, 24 billion KRW. The average return over the past three years for nine unification funds is -4.34%. Government-guided funds such as the Winning Korea Fund promoted by the Moon Jae-in administration have shown favorable returns. However, since they have only been around for one year, it is too early to evaluate them fully. An industry insider said, "The key is whether the New Deal Fund can secure sustainability and differentiate itself from past government-guided funds," adding, "Investments should be made in sectors that can consistently generate profits even after a regime change."

This content was produced with the assistance of AI translation services.