Significantly Reduced MoTaefund Contribution Ratio... Difficult Fundraising for 'K-Bio Vaccine Fund'

20% Investment Ratio, LOC Mandatory Impact
Where to Secure 400 Billion Private Funds?

[Asia Economy Reporter Kwangho Lee] Korea Venture Investment has launched the fund-of-funds ‘Health Account’ investment project. The goal is to establish a 500 billion KRW-scale ‘K-Bio Vaccine Fund.’ To this end, they are accepting investment proposals from venture capital (VC) and private equity fund (PEF) managers, but interest has been far from enthusiastic.

According to the investment banking (IB) industry on the 17th, the support rate for the 500 billion KRW-scale ‘K-Bio Vaccine Fund’ investment project is low. Currently, only 2 to 3 VC and PE firms are confirmed to be preparing proposals. The submission deadline is the 26th, but it is understood that no additional firms are practically preparing proposals beyond these.

The K-Bio Vaccine Fund, promoted by the Ministry of Health and Welfare, was established to develop global innovative new drugs by domestic pharmaceutical companies and to enhance the competitiveness of the vaccine industry. This is due to the increasing number of companies entering late-stage clinical trials for COVID-19 vaccines and therapeutics. It also supports entry into the global pharmaceutical and bio markets.

The main investment targets are △ domestic pharmaceutical and bio companies that have received clinical trial plan approval for vaccine and new drug development (at least 60% of total investment) △ domestic vaccine sector companies (companies related to vaccines and vaccine raw materials and equipment, 15%).

The government’s target total fund size is 500 billion KRW. They plan to select two funds, each worth 250 billion KRW. The anchor limited partners (LPs) are policy banks. Korea Development Bank will contribute 45 billion KRW, Export-Import Bank of Korea 30 billion KRW, and Industrial Bank of Korea 25 billion KRW, totaling 100 billion KRW. Each fund is expected to receive 50 billion KRW in support.

The contribution ratio is only 20%. If selected as a general partner (GP), the fund will receive 50 billion KRW from the government and must secure the remaining 200 billion KRW from the private sector. Considering that fund-of-funds typically contribute more than 50% of the total fund size, this investment project is somewhat less attractive. Although it is a so-called ‘mega fund’ investment project that attracted attention from the investment industry, it is being criticized as a much-anticipated event with little to gain.

According to the announcement of this investment project, submitting a letter of commitment (LOC) is rewarded with additional points if private investors meeting certain criteria are confirmed to participate. However, the LOC is practically a mandatory condition. Therefore, some managers capable of securing private funds worth several hundred billion KRW have started working on proposals.

The government is reportedly also concerned about the poor reception. Since the project is government-led, the fund formation must proceed smoothly to avoid criticism. However, fewer proposals than expected have been submitted due to private sector reluctance to invest.

The Ministry of Health and Welfare introduced a ‘Fast-closing’ system to promote the swift formation and investment execution of the fund. If more than 75% of the funds are raised, the fund can be registered immediately. However, due to the very low contribution ratio, even if a GP is selected, fast-closing is not expected to be easy.

An IB industry insider said, “This investment project emerged as a result of discussions between the bio industry and government officials on revitalizing the bio market,” adding, “The contribution ratio relative to the total fund size is too low, making it difficult for managers with bio expertise to submit proposals.”

He continued, “Although some delegated managers (GPs) have been identified, competition is very fierce because private funds are also limited,” adding, “There are also suggestions that foreign capital might enter the market.”

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