NPS generates profit thanks to Elliott

By Kim Tae-gyu

The National Pension Service (NPS) should be grateful to Elliott Management because its assets have risen lately thanks in no small part to the U.S. hedge fund’s moves in Korea.

According to local financial data provider FnGuide Tuesday, Samsung Group affiliate shares held by NPS were priced at 22.8 trillion won at the end of July but jumped by 15.1 percent to 26.2 trillion won last week.

In particular, Samsung Electronics and Samsung C&T rose 10.9 percent and 22.1 percent, respectively, over the two-month period to contribute to the profit of the NPS, whose stake is 8.38 percent in the former and 5.96 percent in the latter.

As a result, the NPS has earned 2.4 trillion won in the two stocks alone since August, although this week’s slide of Samsung Electronics, caused by the production suspension of its flagship Galaxy Note 7, will reduce the amount.

The value of the two companies rocketed on the Seoul bourse last week when Elliott disclosed an open letter to Samsung Electronics requesting ownership restructuring.

Claiming that the “unnecessarily complex” governance structure of Samsung Electronics undermines its value, the fund asked the tech giant to split in two and troubleshoot problems together with Samsung C&T.

Other Samsung subsidiaries, including Samsung Life, Samsung Fire & Marine, Samsung Engineering and Hotel Shilla, have remained bullish over the past two months, giving the NPS more capital gains.

Samsung Life, the country’s biggest life insurer, has enjoyed appreciation of more than 10 percent since August because the company is another main entity in reshaping the group’s governance system.

Samsung is believed to be thinking of making Samsung Life a financial holding company before merging it with a non-financial holding firm, possibly Samsung C&T, for a final and third holding company to link the two.

Toward that end, Samsung Life has bought stakes in Samsung Group’s financial units including Samsung Fire, Samsung Card, Samsung Securities and Samsung Asset Management.

These measures are crucial to brush away criticism that Samsung has failed to comply with the government’s principle of separating financial capital from industrial capital.

The group has come under fire for its non-financial entities growing through financial capital, including insurance premiums from Samsung Life, which has a 7.5 percent stake in Samsung Electronics.

“I don’t think that Elliott by any means intended it, but its hedge-fund activism has given a windfall to the NPS,” a professor at a Seoul university said. “The situation will remain similar if Elliott keeps demanding governance restructuring of Samsung Electronics.

“The NPS snapped up shares of Samsung affiliates and the strategy seems to have paid off. But it remains to be seen whether Elliott’s efforts of boosting Samsung values will eventually work.”

Elliott has 0.62 percent stake in Samsung Electronics. The holding is small but it amounts to more than 1.3 trillion won because the company is Korea’s largest in terms of market capitalization.