South Korea's Ministry of SMEs and Startups is launching an LP Growth Fund worth about 1 trillion won ($707 million) to draw venture investment from pension funds, financial institutions and the industrial sector. The ministry plans to expand the Fund of Funds' role as an investment platform that channels private capital into the venture market.
The Ministry of SMEs and Startups and Korea Venture Investment Corp. held the LP Growth Fund launch ceremony and the third-quarter Fund of Funds policy forum Thursday at the Startup Venture Campus Seoul in Mapo-gu, Seoul.
The LP Growth Fund is an investment platform designed with customized structures for each type of contributing institution, making it easier for pension funds, financial institutions and industrial players to participate in venture investment. The government has established a two-track contribution structure — through either sub-funds or a fund-of-funds model — and offers incentives such as first-loss coverage and put options to encourage private investors to commit capital to the venture market.
The fund's core aim is to broaden private-sector participation. A total of 18 institutions have committed to contributing. Among them, five — the National Sports Promotion Fund, the Supply Chain Stabilization Fund, the Export-Import Bank of Korea, KMI Korean Medical Institute and Geukdong Logistics Group — are making their first-ever contributions to a venture investment partnership through this fund.
Three pension funds have confirmed participation: the National Sports Promotion Fund, the Industrial Accident Compensation Insurance and Prevention Fund, and the Supply Chain Stabilization Fund. Several additional pension funds are currently in the final stages of their decision-making process. If those institutions also commit, total pension fund contributions to venture funds will be more than five times greater than last year. Last year, the Korea Trade Insurance Fund became the first fund within the pension fund investment pool to participate in a venture fund, contributing 20 billion won.
The fund's defining feature is its reduced reliance on government fiscal spending while drawing in private capital. When private contributors put in 340 billion won, the Fund of Funds will add 170 billion won, bringing the combined public-private contribution to about 510 billion won. Additional contributions from venture capital firms will then bring the total fund size to approximately 1 trillion won.
Unlike conventional Fund of Funds programs, where the government has typically covered about 60 percent of contributions, the LP Growth Fund cuts the government's fiscal share to 20 percent, with the remaining 80 percent coming from private capital. Through this structure, the government expects a multiplier effect of more than fivefold — generating venture fund resources that far exceed the amount of public money invested.
Investment in strategic industries — including defense, AI, beauty and biotech — will also expand. A defense-focused fund worth 110 billion won will be established in partnership with a consortium of the Export-Import Bank of Korea and BNK Financial Group. An open-innovation fund of about 250 billion won targeting AI, beauty, biotech and defense will also be formed, with participation from large, mid-sized and small companies including Naver, Hyosung, GS, Sunic System, Geukdong Logistics Group and Taehwa Group.
Following the launch ceremony, the third-quarter Fund of Funds policy forum took up the theme "Rediscovering Venture Investment as a Vehicle for Managing Private Capital," with participants discussing ways to attract more private money into the venture market.
The LP Growth Fund goes a step beyond the government's previous approach of directly injecting fiscal resources into the Fund of Funds as seed capital for venture investment. The new structure focuses on channeling funds from pension institutions, financial firms and corporations into the venture market — cutting the government's fiscal share to 20 percent while raising private capital's share to 80 percent, allowing a larger pool of venture investment resources to be built with limited public funds.
"The government must go beyond its role as a seed-capital provider and prepare for a Fund of Funds 2.0 era — one that channels accumulated national capital into risk capital," said Noh Yong-seok, first vice minister of SMEs and Startups. "Together with the launch of the LP Growth Fund, we will gather the voices from the field raised at today's forum and strengthen the Fund of Funds' role as a next-generation venture investment platform."
boo@heraldcorp.com
