IN-DEPTH: Q&A with Life Asset Management
An interview with Darren Kang, co-CEO of Life Asset Management on taking a softer approach to shareholder activism in Korea.
Having recently launched an engagement fund, can you expand on your planned "soft" approach?
The fund is centered around what we call a "soft activism" approach. Unlike traditional confrontational tactics, we focus on collaboration and engagement with companies to improve corporate governance, especially in Korea where many businesses are still family-run.
How has your previous experience with activism shaped this approach?
I started my career as a portfolio manager in 2007 and moved to an independent asset manager in 2014 to address corporate governance issues in Korea. I led over five public activist campaigns against companies here. I was the first portfolio manager to file a lawsuit against a public company, so I'm one of the pioneers in this field. Despite our arguments, all these campaigns ultimately failed. This was a pivotal learning experience for me. It highlighted the limitations of confrontational activism in Korea and underscored the importance of cooperation with major shareholders.
What challenges do you anticipate facing in this market, and what opportunities might exist for foreign activists?
The main challenge is the close-knit nature of the business community here, which can be resistant to external influence. However, this also presents an opportunity, especially in sectors like banking and telecommunications, where there are fewer dominant family shareholders and more room for governance improvements.
More than two thirds of listed companies in Korea have dominant major shareholders who own more than one third of outstanding shares. So, over the last five years there have been three or four successful activist campaigns, but all these campaigns were related to scandals involving a major shareholder.
How do current social and regulatory landscapes in Korea affect your strategy?
There's a growing push from both society and the government for better governance, which works in our favor. This trend is particularly timely as many second-generation family owners are currently looking for ways to enhance their companies' value to manage potential issues like inheritance taxes.
Could you delve a bit deeper into the specific strategies you plan to employ to navigate these challenges?
Our approach is twofold. Firstly, we aim to build strong relationships with key stakeholders to gain trust and insight. There are many second generation family members who inherited shares from their fathers and have taken on a heavy debt burden to repay tax. They borrowed a lot of money from local banks and used their inherited shares as collateral. So, they have to boost enterprise value to repay their debt. These are people who want to cooperate with the shareholders.
Secondly, we focus on sectors where the impact of improved governance is most evident and where the regulatory framework supports our goals.
How do you see the role of such engagement funds evolving in Korea's corporate landscape over the next few years?
I believe we are at a tipping point. As more stakeholders recognize the value of good governance, I expect to see a significant increase in the acceptance and success of engagement strategies. This will likely lead to a broader application of such methods across various sectors, enhancing overall corporate health and investor confidence.
Finally, what advice would you give to others looking to implement similar strategies in the market?
It's crucial to understand the local business culture deeply and to tailor your strategies accordingly. Patience and persistence are key, as is a willingness to adapt your approach based on ongoing feedback and results.
