What’s government fund?
Generally speaking, government funds have clear strategic goals for fund establishment or specific industry support purposes. Compared with sovereign wealth funds (see another article on my blog, “Sovereign Wealth Fund“), the investment scope and objectives of government funds are more clear, usually one fund is tied to one main objective; and unlike sovereign wealth funds’ vague goals and investment scope. Because of the limitations of investment scope and objectives, the scale of sovereign wealth funds is much larger than that of government funds established for special purposes.
Famous government funds
The following are the more famous government funds in the world:
- China’s National Integrated Circuit Industry Investment Fund (CICF). Commonly known as the Big Fund, the first phase was very successful, and phased tasks have been completed and phased out. The second phase of the Big Fund was registered and established on October 22, 2019, with a registered capital of RMB 204.15 billion; it mainly invests in semiconductor companies. This fund has been very successful so far. The investment direction is mainly to build an independent and controllable industrial chain.
- The Silk Road Fund in Mainland China: In 2019, China invested US$ 40 billion to establish the “Silk Road Fund”, the main purpose of which is to promote the development of regional economies in Asia; that is, to cooperate with the One Belt One Road initiative of the century proposed by the Chinese government.
- China’s National Manufacturing Industry Transformation and Upgrade Fund: It will invest in enterprises in the fields of new materials, new generation information technology and power equipment.
- Taiwan’s National Development Fund (NDF): In 2006, the Executive Yuan Development Fund and the Executive Yuan Sino-US Economic and Social Development Fund were merged and established to accelerate industrial innovation and increase value, promote economic transformation and national development. The National Development Fund’s total assets in 2019 were NT$ 759.161 billion, of which long-term investments accounted for more than 87.8%. The total annual revenue was NT$ 24.818 billion, total expenditures were NT$ 1.6 billion, and the remaining year was NT$ 23.244 billion, equivalent to return on assets is 3.06%.
- EU Cohesion Fund: Cohesion Fund is a financial tool to reduce development differences in the EU region and assists countries whose gross national product is less than 90% of the EU average. From 2014 to 2020, a total of 15 countries including the Czech Republic, Hungary, and Bulgaria were assisted, but the EU has restricted the use of funds.
- European Future Fund: In 2019, the European Union established a fund of 100 billion euros to stimulate the growth of promising European technology companies and prevent competition from large technology giants such as Amazon and Alibaba.
- EU Semiconductor Plan: The EU has decided in 2020 to invest as much as 145 billion euros in semiconductor development plans within 2 to 3 years.
- US Semiconductor Support Program: The US Department of Commerce has decided to invest US$52 billion in a semiconductor support program in 2021 and will build 7 to 10 new factories in the United States. The main goal is to get rid of the long-term dependence of the United States on Taiwan’s single country in semiconductor manufacturing.
- The Japanese government will set up a 100 billion Japanese yen fund in 2022 to specialize in technological fields related to economic security, including semiconductors, batteries and artificial intelligence.
Difficulty of governance
The biggest problem of government funds, like sovereign wealth funds, is that it is difficult to supervise, and this problem is even worse for government funds than for sovereign wealth funds. This is easy to understand, because the establishment of government funds has a special strategic purpose, and the most obvious is that government funds are usually restricted to invest in their own country’s companies or targets (and many are still unlisted or cannot publicly traded enterprises); the risk will be relatively high, so it usually affects the investment performance of the fund.
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