The South Korean government is expanding its sovereign wealth fund by establishing a new strategic investment account within the Korea Investment Corporation (KIC). This initiative aims to provide long-term patient capital for domestic and international strategic investments, supporting three major projects: semiconductors, artificial intelligence (AI) data centers, and physical AI.
On July 14, during a Cabinet meeting chaired by President Lee Jae-myung at the Blue House, the government presented its economic growth strategy for the second half of 2026.
The strategy emphasizes fostering global competitive growth engines as a key task to boost potential growth rates. The government plans to accelerate the implementation of the three major projects while reforming the sovereign wealth fund and expanding the National Growth Fund to ensure adequate funding.
Initially, the establishment of a separate corporation was considered for managing the sovereign wealth fund, but the decision was made to create the strategic investment account within KIC. This approach leverages KIC's existing experience and global network to enhance investment capabilities swiftly.
The strategic investment account will serve as a channel for supplying long-term patient capital for domestic and international strategic investments. Its funding will come from government contributions, donations, and operational profits, with profits reinvested, distributed as dividends, or returned to the national treasury to prevent misuse.
Investment targets will focus on strategic industries, including the three major projects, essential industries such as finance and infrastructure, and sectors related to national competitiveness and economic security. The government also plans to promote collaborative investments with foreign sovereign wealth funds to attract private and foreign capital into domestic strategic industries.
To address concerns about the credibility of foreign exchange reserves, the government will implement measures to strictly separate the existing KIC foreign exchange reserve account from the new strategic investment account. A so-called 'firewall' will be established between the two accounts to ensure that the management of foreign exchange reserves and strategic investment functions do not interfere with each other.
Lee Hyung-il, Deputy Minister of Finance, stated, “Currently, KIC has a strong savings-type sovereign wealth fund character, but by adding strategic sovereign wealth fund functions, it will become a comprehensive sovereign wealth fund. However, we will ensure that a firewall is effectively built to prevent mutual influence.”
The government's motivation for reforming the sovereign wealth fund is to ensure that the semiconductor boom does not become a temporary economic cycle. With the AI transformation improving semiconductor exports and corporate performance, the strategy aims to connect large-scale investments with increased production capacity and industrial ecosystems to boost potential growth rates.
In the semiconductor sector, the government plans to expand memory production capacity and support next-generation power semiconductors. Initiatives include the early completion of fabs in Yongin and Pyeongtaek, the establishment of semiconductor fabs in the southwestern region, and the creation of a testing ground for advanced semiconductor materials and components to maintain a competitive edge.
For AI data centers, the focus will be on large-scale investments and establishing a global AI hub. The government will support the construction of AI data centers and work with major international organizations to attract AI cooperation centers to South Korea. Additionally, it will lay the groundwork for activating the data economy through the enactment of a national data basic law.
In the physical AI sector, support will be strengthened for seven leading areas, including robotics, autonomous driving, and smart manufacturing. The government plans to select five teams for independent AI model development, ultimately concentrating support on two elite teams to develop globally competitive AI models.
Another pillar for funding strategic industries will be the National Growth Fund. The government plans to launch an additional 600 billion won in a public participation-type National Growth Fund in the third quarter, aiming to support over 15 trillion won in funding in the second half of the year.
A super-innovation economy fund will be established within the National Growth Fund to enhance support for leading projects in super-innovation economies, such as sensors, actuators, and secondary batteries for humanoids, while backing the commercialization and practical application of advanced technologies.
The government will also reform its research and development support methods. It plans to introduce investment-type R&D that includes contributions, creating a structure that allows for recovery and reinvestment. This approach aims to enhance the sustainability and efficiency of financial support for advanced industries.
A Ministry of Finance official remarked, “It is crucial to connect the opportunities created by the semiconductor boom with large-scale investments and productivity improvements, rather than letting them slip away as a temporary cycle. We will supply long-term capital needed for strategic industries through the sovereign wealth fund and the National Growth Fund.”
* This article has been translated by AI.
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