On March 25, the Federation of Korean Industries (FKI) presented a study titled “The Rise and Challenges of Shareholder Activism” that was commissioned to Kim Soo-yeon, a researcher at the law firm Gwangjang.
According to data from research firm Diligent, the research indicates that attacks by activist hedge funds are on the rise. Last year, a total of 951 companies across 23 surveyed countries were targeted by activist hedge funds. This marked an 8.7 percent increase from the 875 companies targeted in 2022 and a 23 percent increase from the 773 companies targeted in 2021.
In particular, activist fund attacks targeting the Asian region saw a total of 214 incidents last year, representing a 16.3 percent increase from the previous year’s 184 incidents. During the same period, North America experienced a 9.6 percent increase, while Europe witnessed a 7.4 percent decrease. Researcher Kim Soo-yeon explained, “Asian companies, less accustomed to dealing with activism, have become easy targets for global activist hedge funds.”
The number of South Korean companies targeted by global activist funds was only 8 in 2019, but it surged 9.6 times to 77 companies in 2023. This marks the third-highest figure among the 23 countries surveyed by Diligent. While Japan saw a slight decrease from 108 companies in 2022 to 103 in 2023, it increased by 1.5 times compared to 68 companies in 2019.
According to the research, private equity funds and institutional investors are also utilizing activist strategies as a means to enhance returns, blurring the lines between activist funds and traditional institutional investors. The strategies predominantly used by hedge funds, such as demanding increased dividends and share buybacks, proxy battles, public acquisitions, attempts to enter the board of directors, and demands for board member replacements, are now also being employed by institutional investors. With the intensifying competition among various investors such as hedge funds, activist funds, and private equity funds to enhance profitability, the pressure on companies is expected to increase further in the future.
In recent times, there has been an increase in a tactic known as “swarming” in the United States, where one or more activist funds simultaneously target a company. This involves multiple activist funds independently attacking the same target company without prior coordination, each employing their own strategies and aiming for specific returns within a similar time frame. The number of swarming incidents rose from 7 in 2020 to 9 in 2021 and further increased to 17 in 2022.
In the past, activist funds utilized the “wolf pack” tactic, where multiple funds held undisclosed stakes in a company and then collectively launched an attack. However, they have now realized that the swarming strategy is also an effective and easy means of pressuring target companies. Companies like Walt Disney, Bayer, and Salesforce have faced such swarm attacks.
In Japan, there has been a growing trend of companies opting to go private as they face concentrated attacks from global activist funds. The number of Japanese companies transitioning to private status nearly tripled from 47 in 2015 to 135 in 2022. Many cite pressure from activist funds as a primary reason for this transition.
As South Korean companies become targets of global activist funds, the prospect of hostile M&A attempts or threats to corporate control is expected to rise. However, the lack of defense mechanisms beyond share buybacks is also a concern. Researcher Kim Soo-yeon stated, “Companies need to enhance communication with institutional investors, but the government also needs to institutionalize defense mechanisms for companies against excessive attacks from activist funds. As the environment surrounding companies rapidly changes, including the rise of shareholder activism, the government should not only focus on supervising dominant shareholders but also design regulations to enable companies to grow and enhance value from a long-term perspective.”