Activist hedge funds, take a look at South Korea. Yes, you heard right.
With the country's former president impeached and the vice chairman of its biggest company, Samsung Electronics Co., indicted, this could be the moment when a little aggression works wonders to loosen the clutches of Korea's famously cash-hoarding firms.
Being an activist hedge fund is still a lonely job in Asia, never mind South Korea, where family empires control much of the economy via a complex web of cross-shareholdings. While retail investors are allowed to short sell, they face stringent conditions, and the nation's stock exchange is quick to question the transactions of institutional investors. Only one local fund, Lime Asset Management Co., professes to play the activist game.
Seeing others in the industry frustrated hasn't helped. Paul Singer's Elliott Capital Management Corp. failed to prevent a merger that ultimately tightened the grip of Samsung's founding Lee family on the country's largest chaebol, although it did score a minor victory last year when it pushed the consumer-electronics group to boost its dividend.
Payouts on the whole are still pretty dismal though, contributing to the "Korea discount" that sees chaebol-linked companies trade at lower earnings multiples than firms in the U.S. or Europe. Companies on the Kospi Index currently pay out less than 20 percent of their earnings as dividends, compared with more than 40 percent for those on Hong Kong's Hang Seng Index and the Dow Jones Industrial Average in the U.S., according to data compiled by Bloomberg.
There is strength in numbers, however, and South Korea's nascent hedge fund industry is growing strongly. Data from NH Investment & Securities Co. show that a loosening of regulations in 2015 helped to boost the number of local players to 250 last year while assets under management doubled to $7 billion. Figures from industry researcher Preqin Ltd., meanwhile, indicate that returns from shareholder activism in the Asia-Pacific region outperformed North America in the fourth quarter.
The pockets of tumult in Asia's fourth-largest economy mean conditions are ripe for change. If there's ever been a point in the nation's history when activism might just work, it's now.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Nisha Gopalan in Hong Kong at firstname.lastname@example.org
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