Korea Venture Capital Association Voices Concern Over Proposed Fund of Funds Budget Cuts

The Korea Venture Capital Association (VC Association) expressed deep concern on the 18th regarding discussions about cuts to the Korea Fund of Funds budget raised ahead of the National Assembly Special Committee on Budget and Accounts’ Subcommittee on Budget Adjustment. The association urged the government to maintain the announced direction for the 2026 budget and to gradually expand the fund with a focus on strategic industries.

In a statement, the VC Association said, “To accelerate the growth of national strategic new industries, including AI, the role of the Fund of Funds must be strengthened.” The association emphasized, “Despite the increase in the scale of venture investment, Korea’s venture investment as a percentage of GDP remains only one-fifth that of the United States. To narrow this gap, the public Fund of Funds must provide a benchmark and trust to the market in order to further attract private capital.”

Korea Venture Capital Association logo.

The association continued, “Investment from the Fund of Funds typically generates more than four times the leverage effect from private capital. When the Fund of Funds participates as an anchor limited partner (LP), it activates private investment from pension funds, financial institutions, and corporations, thereby expanding the total investment scale.” The association added, “Conversely, if the size of the investment is reduced, the leverage base weakens, which leads to a contraction in private capital, and ultimately, a decrease in the overall investment capacity of the market.”

The association also countered, “Some argue that since existing sub-funds still have investment capacity, next year’s investment scale is excessive. However, the dry powder held by VCs is not simply cash reserves, but rather a buffer to deploy optimal investment strategies in response to market fluctuations.” The association stated, “Given the current high volatility in international financial markets, such as interest rates and exchange rates, it is time to strengthen the Fund of Funds’ role as a safety net supporting investment sentiment.”

The VC Association believes that a reduction in the Fund of Funds would sharply contract the venture investment market. The association stated, “Some have suggested that the investment budget should be allocated in line with the annual investment rate of sub-funds, but this would create uncertainty regarding Fund of Funds investment, which is a serious concern.” The association continued, “If the next year’s Fund of Funds budget is not sufficiently reflected, uncertainty over whether investments will be made makes it difficult to attract private investors. As a result, the formation of venture funds may be delayed or fail, leading to a rapid contraction of the venture investment market.”

Kim Hakgyun, President of the VC Association, stated, “While a reduction in the Fund of Funds budget may appear to save fiscal resources on the surface, in the mid- to long-term, it incurs even greater costs, such as a decline in private investment, a slowdown in the growth of new industries, and a weakening of national competitiveness.” He stressed, “With global competition in strategic industries, including AI, intensifying, it is essential to maintain the Fund of Funds budget at least at the level proposed by the government so that it can fulfill its role.”

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