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Building a Korea-Backed Impact Fund for Southeast Asia
- Author Weonhyeok Chung
- Series323
- Date2025-09-03
South Korea’s official development assistance (ODA) reached approximately USD 3.16 billion (KRW ≈ 4.78 trillion) in 2023, reflecting steady growth and Korea’s ambition to play a more prominent role in the global development agenda. Yet in one critical area—mobilizing private capital through Private Sector Instruments (PSI)—Korea remains almost entirely absent. PSI, which includes equity investments, guarantees, and loans designed to catalyze private finance, accounted for just 0.33 percent of Korea’s total ODA in 2024, compared to an average of 2.65 percent across Development Assistance Committee (DAC) members in 2023.
This disparity is not the result of limited resources or insufficient investment expertise. Korea has built a dynamic domestic venture capital and private equity ecosystem with a strong record of public–private co-investment. The difference lies in institutional design and political will. Many DAC members have dedicated development finance institutions (DFIs) that invest directly in businesses, infrastructure, and financial systems in developing countries. These DFIs—such as British International Investment (BII) with GBP 8.5 billion in assets, or Proparco with EUR 8.2 billion—operate on a commercial footing, seek both financial returns and measurable development outcomes, and reinvest proceeds from successful exits or loan repayments into new projects, creating a self-sustaining pool of capital that drives continued development impact. Without a similar in-stitutional vehicle, Korea cannot effectively deploy PSI or systematically report mobilized private capital under DAC standards.
Korea already has homegrown models that successfully leverage public capital to attract private investment. The Korea Fund of Funds (KFoF) , managed by the Korea Venture Investment Corp. (KVIC), serves as a policy-driven “fund of funds” channeling capital from multiple ministries into venture capital (VC) and private equity (PE) partnerships. In 2025, the fund’s first round of regular commitments totaled KRW 753.8 billion across nine categories—including early-stage startups, rookie funds, and youth entrepreneurship—with final fund formations targeted for completion by July. By pooling public resources and partnering with private asset managers, KFoF provides a proven domestic model for catalyzing private investment at scale—one that could be adapted to advance Korea’s development cooperation objectives abroad.
Korean private equity and venture capital firms are also active investors in Southeast Asia, backing high-growth companies such as Vietnam’s leading e-commerce platform Tiki, Singapore-based Carousell and ride-hailing giant Grab, and Indonesia’s fresh food delivery service HappyFresh. Major players like Stick Investment, Korea Investment Partners, and IMM Investment have collectively committed hundreds of millions of dollars to the region’s e-commerce, logistics, consumer goods, and infrastructure sectors—demonstrating that Korean capital is both willing and able to support Southeast Asia’s growth when the right opportunities arise. With targeted public-sector participation, this private capital could be mobilized more systematically and at greater scale, aligning commercial investments with development objectives.
The well-targeted public investment can reduce risk for private investors and spur innovation. Allocating even 3 percent of Korea’s ODA to PSI—equivalent to more than KRW 143 billion annually—could finance a pilot impact-oriented private equity fund for Southeast Asia. Half of the fund’s resources could be devoted to equity investments, split between direct stakes in companies and indirect commitments through third-party funds, with the other half allocated to loan-based PSI instruments targeting lower-risk, later-stage opportunities. The approach could combine elements from different investment models: accelerators such as Antler or Y Combinator that provide seed funding and intensive mentoring for early-stage startups; venture capital firms like Sequoia Capital or Andreessen Horowitz that back high-growth companies through larger follow-on investments; and impact-focused private equity funds such as Adenia Capital or Amethis that invest in more mature businesses to drive both commercial returns and measurable development outcomes. By accepting a degree of investment failure but recycling capital from successful exits, the fund could create a sustainable, revolving pool of resources for long-term impact.
Given Korea’s existing private investment footprint in the region, Southeast Asia offers an ideal initial focus for launching such a fund. The region is geographically close, economically intertwined with Korean industry, and home to some of the fastest-growing economies in the world. Yet it faces a development financing gap in the hundreds of billions of dollars, particularly in infrastructure, renewable energy, healthcare, and digital connectivity. Many Association of Southeast Asian Nations (ASEAN) economies also struggle with limited financial inclusion, creating space for impact-oriented fintech and SME finance. By focusing on commercially viable, high-impact sectors, Korea could help close these gaps while strengthening economic ties.
The optimal model would see the Korean government—through a newly created DFI or via a PSI-earmarked ODA allocation—serve as an anchor limited partner (LP), meaning it would provide a substantial share of the fund’s capital but would not be directly involved in day-to-day investment decisions. General partner (GP) functions—responsible for sourcing deals, managing investments, and making operational decisions—could be assigned to an experienced private asset manager with a proven track record in Southeast Asia, or to a co-managed platform blending public oversight with private sector efficiency. This arrangement would combine the government’s credibility and policy alignment with the GP’s technical expertise, rigorous due-diligence processes, and disciplined portfolio management, ensuring that the fund remains both commercially viable and impact-driven.
The investment mandate could prioritize scalable SMEs, renewable energy developers, and social infrastructure providers in middle-income ASEAN countries such as Vietnam, Indonesia, and the Philippines, while maintaining traditional ODA flows to least-developed countries in the region. To operate effectively, Korea’s prospective DFI should embed robust risk mitigation tools in its design, including political risk insurance from the Multilateral Investment Guarantee Agency (MIGA) or the Korea Trade Insurance Corporation (K-SURE), partial credit guarantees to improve borrower creditworthiness, and prudent diversification across sectors and geographies.
Allocating even a modest share of ODA to PSI, anchored in a professionally managed Southeast Asia impact fund, would multiply the impact of public resources, position Korea as a serious and innovative development partner, and strengthen its influence in a region central to its long-term economic and diplomatic interests. By mobilizing PSI investments through ODA, Korea can diversify its development finance portfolio while enhancing operational efficiency—directing impact investments toward relatively higher-income Upper-Middle-Income Countries (UMICs) and Lower-Middle-Income Countries (LMICs) in Southeast Asia, and channeling traditional grants and concessional finance to Least Developed Countries (LDCs).
Ph.D., Associate Research Fellow,
Development Cooperation Policy Team
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