South Korea set to enhance KIC's role in strengthening AI development

Key Points

South Korea’s Ministry of Economy and Finance plans to launch a new specialised investment account within the existing offshore-focused sovereign fund Korea Investment Corporation (KIC) to expand it into a comprehensive vehicle providing strategic capital for future growth engines like AI.

Jeon Jaeuk, a spokesperson for KIC, told AsianInvestor that the fund welcomes the government’s plan. “KIC will take on greater responsibility to ensure that the nation’s taxes are used to drive the growth of valuable national assets,” Jeon said. “Over the remaining preparation period, we will make every effort to be fully prepared, including securing top-tier talent”.

Investment targets include areas with significant spillover effects and high potential growth rates, such as AI, advanced materials, nuclear power and aerospace. Data centres, energy clusters and overseas supply-chain companies will also be considered.

Backed by the government, it will pursue equity and direct investments in high-growth sector enterprises. The initial capital will be set at around KRW20 trillion ($14.8 billion), combining cash, government-held public institution shares and tax-paid stocks. The government plans to allocate KRW500 billion in cash in next year's budget, targeting an initial first-year investment of KRW1 trillion.

In principle, the new account will exercise management participation, including voting rights, in proportion to the equity stakes it holds in companies. The fund will also pursue co-investments with policy funds and “follow-on” investments, in which promising companies are selected for additional backing when other funds are liquidated. As an anchor investor, it may also participate in joint investments with other sovereign wealth funds and global asset managers.

This decision stems from the assessment that KIC has been constrained to purely financial investments abroad while global instances of using sovereign wealth funds for active industrial policy are rising. 

Joo-Kyung Yang
Kiwoom AM

To facilitate this shift, pending National Assembly approval, the government will ensure KIC’s independent decision-making remains intact. A government committee, reinforced by private-sector experts, will set broad strategic directions but will not intervene in individual deals.

“All strategic investment decisions will be independently reviewed and ultimately approved by the board,” the ministry official said. New internal committees for investment, advisory and risk management will also be established to support the board.

To further strengthen expertise, three private-sector experts will join the committee, and the board will expand to include executives with specialised sector knowledge responsible for managing the new account.

Joo-Kyung Yang, head of the global fixed income team at Kiwoom Asset Management, said that KIC is likely benchmarking the Temasek model. "The new account seems to play a similar role to Seviora Holdings, an asset management group under Temasek," Yang said, adding: "Ultimately, it is anticipated that KIC might also establish a similar asset management group under its umbrella in the future."

Seviora was established in 2020 by the Singaporean sovereign fund as a subsidiary under its wing to manage its asset managers.

As a finance ministry official told AsianInvestor: “Temasek was also relatively small in its early days, but it continued to grow through investment returns.”

If approved by lawmakers, the initiative could mark a significant shift in KIC's mandate, positioning the sovereign fund as a key player in growing South Korea's next generation of strategic industries.