Government Takes on Losses, Yet Second Growth Fund Fails to Sell Out
Despite a structure in which government funds absorb losses first, the second National Participation Growth Fund raised only 519.8 billion won (86.6%) of its 600 billion won target. It was the opposite of the first offering, which sold out in just five business days. According to the Financial Services Commission (FSC) and the financial industry, combined subscriptions for the first and second offerings totaled about 1.12 trillion won after the second fund's sales period, which began on the 30th of last month, came to a close.
The difference in sales pace tells the story. The first fund sold 87% of its inventory on the first day and sold out within five business days, with 30,258 subscribers putting in an average of about 20 million won each. In contrast, the second fund stood at 316.2 billion won (52.7%) after four days and a cumulative 452.5 billion won (75.4%) after eight business days. Daily sales were a mere 15.5 billion won on the 13th and 23.4 billion won the next day. Sellers launched an all-out push at the end, moving 44 billion won on the final day, but it was not enough to clear the remaining inventory.
By distribution channel, 14 securities firms sold 334.5 billion won (66%) while 10 banks sold 170.3 billion won (34%), showing a clear tilt toward brokerages, with online sales accounting for 83.7%. As bank branches cooled off first, 146.9 billion won of the inventory allocated to banks was reassigned to brokerages, but that failed to revive the momentum. The share of subscriptions from ordinary retail investors was 26.5%.
The biggest variable separating the first and second offerings was the market environment. On May 30, right after the first fund sold out, FSC Chairman Lee Eok-won called a Kospi breakthrough above 8,000 "a true turning point and the start of a transition," foreshadowing the second fund's launch. But during the second fund's sales period, the stock market fell and concerns emerged that the semiconductor cycle had peaked, turning investors away. Lee In-chul, head of the Cham-Economy Research Institute, diagnosed: "Right now, retail investors who borrowed money to chase the rallies in Samsung Electronics and SK Hynix are stuck holding positions as the market falls, so there is no spare cash to speak of. The second fund happened to launch at precisely the wrong moment, so it was inevitable it would not sell out."
The first fund's track record also weighed on sales. Its cumulative return is known to have remained in the 1% range as of the 6th, after roughly four months of operation since its launch in mid-June. While some argue it is too early to judge a five-year closed-end product by early returns, the existing fund's lackluster performance is seen as having influenced decisions on whether to sign up for the new one.
Structural burdens also played a role. In the National Participation Growth Fund, subordinated capital from government finances and fund managers' own money absorbs 18.8% to 23.3% of losses first for each sub-fund, but losses beyond that fall to ordinary investors. A structure read as a 'safety net' in a rising market began to be interpreted in a falling market as a product that does not guarantee principal. The sales design that barred first-round subscribers from reinvesting and the five-year redemption lockup were further obstacles.
The loss-absorption structure drew criticism at the FSC's audit by the National Assembly's Political Affairs Committee on the 8th. Rep. Park Joon-tae of the People Power Party criticized, "The FSC encouraged subscriptions by touting a safeguard under which losses are covered by tax money," and, citing the precedent of 8 of 17 liquidated New Deal Fund sub-funds posting losses that were partly covered by public finances, warned, "We could be headed down the same path." Chairman Lee countered, "Private capital does not move well on its own, so the government acts as a catalyst to draw in private capital and prepare for the future." He also announced that same day that the National Growth Fund's size would be expanded from 150 trillion won to 200 trillion won.
With identical terms of subordinated loss protection and tax benefits, it was the shift in market conditions that decided the fate of the sales.
