The Korea Economic Research Institute (KERI) has urged the Korean government to introduce management rights defense measures in a hurry to block activist hedge funds.
The institute has recently analyzed a report from Activist Insight, a company researching data related to activist hedge funds, and found that their hostile management intervention is becoming more and more frequent these days.
The number of activist hedge funds increased from 275 to 524 between the first half of 2013 and the first half of this year. In addition, the number of companies publicly targeted by these funds, including Apple and P&G, rose from 570 to 805 between 2013 and 2017.
Activist hedge funds' investment in large companies is on the rise, too. Specifically, the ratio of their investment in companies with a market capitalization of at least US$2 billion to their total investment rose from 33% in 2016 to 36% in 2017.
Also, the number of management interventions targeting Asian companies jumped from 10 to 106 between 2011 and last year. “Most of the Asian companies are Japanese and Chinese, but South Korean companies cannot be relieved in that cases like Elliott Management’s intervention in the Samsung C&T-Cheil Industries merger in 2015 and the Hyundai Motor Group restructuring in 2018 are following one after another,” the KERI explained.
According to the KERI, implementation of the revised commercial law that stipulates cumulative voting and separate auditor election will facilitate attacks by hedge funds and, as such, management rights defense measures need to be prepared without delay. “The measures that need to be discussed right away include dual class stocks and the poison pill,” the institute pointed out.