Bruce Lee vs. Korea’s Chaebol

The former head of Allianz SE’s South Korean asset-management unit said he plans to raise $500 million for a new activist fund aimed at taking on the dynasties that rule Korea Inc.

Zebra Investment Management, set up in Seoul last month, will focus on investing in companies that put interests of founding families above those of other shareholders, and shake them up, Chief Executive Officer Bruce Lee said. He plans to start with small businesses before eventually going after large conglomerates, known locally as the chaebol, he said.

“You could say I’m crazy and you’d be right,” Lee, 55, said in an interview in Seoul this month. “I’m crazy about improving corporate governance of South Korean companies. Not only is it necessary for the economy, it’s also going to be profitable for our investors.”

While the chaebol have dominated Asia’s fourth-largest economy for decades -- Samsung Electronics Co. and Hyundai Motor Co. alone account for about 20 percent of the benchmark Kospi index’s market value -- Lee is betting conditions are ripening for corporate governance activists. The chaebol are facing mounting scrutiny under President Park Geun Hye’s administration, which is threatening to loosen the founding families’ grips over their business empires.

“Activist shareholders will have a positive and meaningful impact on Korea’s economy by helping keep the chaebol from abusing their powers,” said Wi Pyoung Ryang, a researcher at corporate watchdog Center for Good Corporate Governance. “Still, Korea’s chaebol-oriented society is going to put up a fight and even the general public will not look upon them kindly.”

‘Korea Discount’

With Zebra Investment, named after small-cap investor Ralph Wanger’s “A Zebra in Lion Country,” Lee plans to elect outside directors chosen by minority shareholders, persuade companies to return idle cash and sell off underperforming businesses, he said.

Lee, who counts investors such as Carl Icahn, Barry Rosenstein and David Einhorn as role models, said the way the chaebol are run is the main reason why Korean stocks trade at lower price multiples than global peers -- a phenomenon known as the “Korea discount.” For example, the country’s benchmark Kospi Index trades at about book value, while the MSCI World Index trades at twice its book value.

‘Credible Threat’

“Korean companies are structured to help owners and largely ignore the shareholders’ value,” Lee said. “There is a need for a credible threat to keep the owners in check and that is the role of the activist investors.”

Take Samsung Electronics Co., the nation’s largest company. Chairman Lee Kun Hee, 72, only owns a 3.4 percent stake, yet he’s controlled the company and scores of others for almost three decades through a maze of cross-shareholdings. Chung Mong Koo, 76, owns 5.2 percent of Hyundai Motor Co., yet he’s been running the nation’s largest carmaker and dozens of affiliates for over a decade.

Both Samsung and Hyundai Motor declined to comment. A representative at the Federation of Korean Industries, the lobbying group for the chaebol, declined to comment beyond a May statement that increased government scrutiny on conglomerates could set back corporate investment plans and weaken business operations.

Common practices that Lee said chaebol owners engage in, at the expense of minority shareholders, include diverting cash from financially stable companies to struggling affiliates and appointing untested relatives to executive positions.

Following Lazard

Shares of Mando Corp. fell 28 percent in April 2013, a record monthly drop, after the auto-parts maker agreed to bail out a fellow Halla Group construction affiliate. While Halla said at the time the deal was meant to bring stability to the group, the move prompted Mando’s second-biggest shareholder, Korea’s $400 billion National Pension Service, to oppose extending the chief executive officer’s term. The CEO got re-elected. A representative at Mando didn’t comment for this story.

Lee isn’t the first person to start an activist fund in Korea. In 2006, Lazard Asset Management LLC and local shareholder activist Jang Hasung formed the Korea Corporate Governance fund. While it managed to pressure the Taekwang Group to reorganize into a holding company and form policies for the units to pay dividends, the fund closed down six years later.

Lee has his own track record in shaking up family-run businesses. A year after setting up a team in 2004 at Allianz to specialize in corporate governance and small-to-medium companies, Lee scored what he says is his biggest coup, a threefold return on an investment in clothing company FnC Kolon Corp.

Early Days

He spent two years lobbying management before they agreed to combine the apparel business with a sister company’s similar but ailing operations, he said. By 2012, the team managed $3.5 billion spread over three funds.

“There will be times when we fail but it’s still worth taking that action as it will help lift public awareness,” Lee said. “To the management, it will show that there is a credible threat that should not be taken lightly.”

For now, Lee, who left Allianz last year, says his goal is to raise money. The Zebra fund was started last month with 3 billion won ($3 million) in initial capital, meaning he won’t be challenging the nation’s largest chaebol anytime soon. Lee estimates he would need at least $10 billion to do that.

Lee’s friction with the chaebol stretches back to his first job out of Hankuk University of Foreign Studies, when he joined the Samsung Group. His career there lasted all of three months. As he put it, “I didn’t fit in that culture.”

Bruce Lee

Since then, he has worked at Daishin Securities Co., CLSA Ltd., UBS AG, Salomon Smith Barney, and most recently Allianz Global Investors Korea. In that time, he earned a PhD in finance at Rutgers University and worked at Nicholas Applegate Capital Management LLC in San Diego.

As for the name, a former boss at CLSA found it difficult to pronounce Lee’s Korean given name -- Wonil -- and called him Bruce. It stuck.

Lee, a father of two, embraces having the same name as the legendary martial artist. Recently he was invited to deliver a lecture to business students at Seoul National University, where he obtained his MBA. The first thing he did when he got on the podium was to introduce himself as “Bruce Lee” and thumbed his nose, mimicking the late movie star.

“There were about 80 students in the hall and they all laughed,” he said. “It was great.”

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