Korea Investment Corporation will expand into domestic strategic investments within this year, the government announced on July 14. The sovereign wealth fund will create a separate strategic investment account for domestic strategic and infrastructure industries, ending its 21-year foreign-asset-only mandate. The policy requires amending Article 31 of the Korea Investment Corporation Act and aligns with global sovereign wealth funds supporting strategic industries, though experts cite forex reserve and investment selection concerns.
Government Announces KIC Domestic Investment Expansion
The government's second-half economic growth strategy announced on July 14 restructures KIC into a "comprehensive sovereign wealth fund." The organization will establish a strategic investment account separate from its existing forex reserve trust account to invest in domestic and international strategic sectors.
Article 31, Paragraph 4 of the Korea Investment Corporation Act currently states: "The corporation shall manage entrusted assets as foreign currency-denominated assets abroad." Paragraph 5 permits temporary won-denominated asset management only for "deposits at financial institutions, purchases of government bonds, and other stable and neutral operations."
These provisions, unchanged since the law's July 2005 implementation, will be amended to enable KIC's domestic investment activities. The government emphasized strict accounting separation between the forex reserve trust account and the new strategic investment account to maintain external confidence in Korea's forex reserves.
The strategic investment account will be funded through government capital injections, donations, and investment returns—distinct from forex reserve sources. KIC stated in recent parliamentary materials that it will pursue direct investments in artificial intelligence, semiconductors, and supply chains, plus indirect investments through domestic asset manager separately managed accounts.
Spain and France Deploy Sovereign Wealth Funds for Strategic Industries
Global sovereign wealth funds increasingly support strategic industry development beyond traditional asset management. Spain's development finance agency COFIDES announced in May a €300 million joint investment fund with Qatar Investment Authority targeting Spanish growth companies in green transition, digital transformation, and technological innovation sectors. The structure uses domestic public capital to attract long-term foreign sovereign wealth fund capital into strategic industries.
France's sovereign wealth fund BPIFRANCE invested in domestic AI company Mistral AI from its early stages. IE University's "Sovereign Wealth Funds 2026" report cited this as an example of "using public capital to cultivate national champion companies in technology sectors."
These precedents support expectations that KIC can provide stable capital to domestic strategic industries while attracting co-investment from foreign investors. Industry observers note KIC's 21-year global sovereign wealth fund network built through overseas investments as a key strength for connecting international capital with domestic strategic sectors.
An investment banking industry source said: "Globally, many sovereign wealth funds are considering how to create synergies for long-term national development. If the state can contribute to areas difficult for private investment, there is room for utilization."
Experts Warn of Forex Reserve Depletion and Selection Risks
Concerns about forex reserve reduction remain prominent. The National Assembly Secretariat's February review report on a previous KIC domestic investment bill noted exchange rate volatility risks during foreign-to-won asset conversion, potential forex reserve liquidity impairment, and possible role overlap with the National Growth Fund.
The secretariat stated: "Won-denominated assets cannot be immediately used as forex market stabilization funds during national economic crises, necessitating consideration of domestic investment scale that does not undermine forex market soundness. Inefficiency concerns arise from overlapping scope with the National Growth Fund."
A forex market expert said: "The basic principles of forex reserve management are liquidity, stability, and profitability. The newly pursued strategic investment differs in nature from these objectives." The expert added that if the strategic investment account uses entirely different funding sources like government capital injections rather than transferring existing forex reserves, "it would be difficult to view this as damaging existing forex reserves."
Experts question the sovereign wealth fund's capability to identify high-productivity, promising investment targets. Kim Woo-chul, professor of taxation at University of Seoul, said: "If there were solid projects, private investors would naturally invest. The government must be cautious about moving hastily when private investors cannot. The public sector will struggle to match the private sector in terms of resource allocation standards and experience."
Kwak No-sun, economics professor at Sogang University, emphasized: "The government's role is to prepare infrastructure and create environments. There must be an incentive structure allowing experts to make independent decisions as if investing their own money."
An investment banking source expressed concern about KIC's new mission: "KIC is an organization trained only in financial investor investments. It has never considered and had no need to consider strategic investor concerns like 'How will this help our country's industrial development?' or 'What impact will this have on the semiconductor ecosystem?'"
Experts also caution against structures where sovereign wealth funds reduce private capital risk through subordinated positions. KIC held a board meeting on July 10 to discuss strategic investment status and plans.
FAQ
What did Korea Investment Corporation announce on July 14?
KIC will expand into domestic strategic investments within this year through a new strategic investment account, ending its 21-year mandate of investing only in foreign currency-denominated assets abroad. The government announced this policy shift in its second-half economic growth strategy on July 14.
Why are experts concerned about KIC's domestic investment expansion?
Experts cite three main concerns: potential forex reserve depletion or reduced liquidity, uncertainty about the public sector's ability to select productive investment targets compared to private investors, and possible role overlap with existing funds like the National Growth Fund. Kim Woo-chul of University of Seoul stated that private investors would naturally fund solid projects, questioning government intervention when private capital hesitates.
