Activist funds ramp up efforts ahead of shareholder meetings
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As the upcoming general shareholders' meeting season approaches, activist funds are becoming increasingly busy. Following their focus on dividends last year, their attention this year seems to be focused on initiatives aimed at improving corporate governance and enhancing shareholder rights.
On Dec. 6, Palliser Capital requested Samsung C&T to improve its governance, highlighting that its shares are undervalued in the market. Specifically, the British asset management fund urged the firm to enhance shareholder value by purchasing treasury stocks and transforming its governance structures into a holding company format.
On Dec. 1, another activist fund, Flashlight Capital Partners, sent a letter to the board of KT&G, urging them to improve its nominating process for CEO candidates. The fund criticized the re-election process of KT&G CEO Baek Bok-in as problematic, and noted that the shares have plunged 19 percent since Baek took the helm in 2015. It urged the company to include external figures in the candidate list and to thoroughly document the election process for future verification.
KCGI Asset Management, which has been demanding improvements in the governance structure of Hyundai Elevator, has achieved some success, evidenced by the resignation of chairwoman Hyun Jeong-eun last month. Even after, the fund continues to press for enhancements to the management structure, aiming to restore corporate value to "normal levels."
The funds believe that the so-called "Korean discount" stems from the weak governance of Korean firms, which is often centered around a few major shareholders.
It is expected that the activities of these funds will gain momentum early next year. Since most general meetings are scheduled for March, agendas are likely to be submitted by February.
"The general annual meeting is a critical platform for enhancing governance," Hi Investment & Securities analyst Lee Sang-heon said in a recent report. He noted that changes could only be achieved if the activist funds, holding only 1 or 2 percent of the shares, manage to win over the support of other shareholders.
As individual investors' attention towards the movements of such funds increases, an exchange-traded fund (ETF) focused on shareholder returns will be launched on Thursday.
Managed by Truston Asset Management, this ETF will include companies that have been targets of shareholder activism by activist funds, as well as those expected to see a rise in corporate value following improvements in their governance structures.
"An activist fund's push for shareholder returns is a great benefit for existing shareholders. However, the stock prices of targeted firms can become highly volatile following the funds' activities. It's risky for individual investors to enter the market (based solely on the expectation that the shares will rise)," an official from a local brokerage firm said.