South Korea's Ministry of Science and ICT said on March 23 it will publicly solicit applicants through May 6 for a fund manager for its 2026 second regular capital commitment project under the cybersecurity fund-of-funds programme.

The new fund will be 16 billion won in a public-private partnership. The government's commitment will be 8 billion won, for a 50 percent share. The ministry will select 1 manager.

The main investment targets fall into 3 categories: companies with innovative cybersecurity technologies such as AI and zero trust; mergers and acquisitions involving cybersecurity companies; and cybersecurity companies setting up overseas local subsidiaries or joint ventures. At least 50 percent of the fund's committed capital must be invested in at least 1 of the 3 categories.

The ministry also prepared incentives to attract private investors. If excess returns occur, up to 30 percent of the fund-of-funds' share can be paid to private investors, or if losses occur, it can provide first-loss coverage within 15 percent of the fund-of-funds' paid-in commitments. This year it newly introduced a call option system that allows private investors to buy up to 30 percent of the fund-of-funds' stake. The manager will propose 1 of the 3 incentives.

The manager's performance fee will be up to 20 percent of returns above the benchmark return of 3 percent. It will receive an additional performance fee of up to 20 percentage points if investments in early-stage startups account for at least 40 percent, or if it exceeds the main-purpose investment ratio within 2 years of formation. A manager that proposes investing at least 20 percent of the minimum formation amount within 6 months of formation will receive additional points in the selection process.

The ministry is currently operating 3 funds after forming South Korea's first cybersecurity fund in 2024. It invested a total of 12.7 billion won in 8 companies last year, of which 9.5 billion won went to cybersecurity companies. The investment burn rate is about 21 percent against total commitments of 61.2 billion won.

Lim Jeong-gyu (임정규), director general for information protection and network policy at the ministry, said the domestic security industry is centred on small and midsized companies and has difficulty securing growth funding. He said the cybersecurity fund will expand the investment base for promising security companies and strengthen the competitiveness of domestic security companies.