Hedge fund palliser says Korean investors starting to embrace shareholder activism

Palliser Capital Sees Korean Investors Embracing Shareholder Activism

Growing Receptiveness to Foreign Shareholder Activism in South Korea

By Heejin Kim

SEOUL, March 16 (Reuters) - London-based hedge fund Palliser Capital said South Korea is becoming more receptive to foreign shareholder activism, with local investors joining more efforts to challenge how family-controlled conglomerates do business.  

Palliser’s Engagement with LG Chem

Palliser has sought changes to unlock greater shareholder value at South Korean petrochemical company LG Chem, including cutting the firm's 80% stake in subsidiary LG Energy Solution.

Improved Communication with Korean Investors

James Smith, Palliser's chief investment officer who previously worked at Elliott Investment Management, said communication with Korean investors has improved to encourage their involvement in the fund's proposals.

It's "a different environment now," said Smith in an interview on Friday during a visit to Seoul, citing his 25 years of experience with Korean markets.

Changing Attitudes Toward Activism

Smith, whose former employer Elliott previously targeted Samsung Electronics and Hyundai Motor in high-profile battles, said Korean investors now have a better understanding of activism. 

"Ten to 12 years ago ... it felt like a very strong presumption of negativity of foreign investors," he said.

"Now you have multiple folk here in Korea taking that approach," he said, referring to local shareholder activists.

Regulatory and Market Factors Supporting Activism

South Korea's regulatory push to resolve a perceived discount in the country's stock market valuations is helping shareholder activism, he said.

Government Reforms and the ‘Korea Discount’

Since taking office in June last year, President Lee Jae Myung's administration has unveiled a reform plan for listed companies to boost shareholder returns in an effort to reduce a so-called "Korea discount" on stock prices.

The Korea discount refers to a tendency for South Korean companies to have lower valuations than their global peers due to factors like low dividend payouts and the dominance of opaque conglomerates known as chaebols, which are perceived by some to prioritise the interests of controlling families over those of ordinary shareholders.

Palliser’s Track Record and Influence

Palliser is among the top 10 shareholders of LG Chem, Smith said, without disclosing the size of its stake.

Previous Activism in Korea and Japan

This is not the first time Palliser targeted a chaebol. In 2024, it proposed and helped to achieve changes at chipmaker SK Hynix's holding company. 

In Japan, Smith previously made investments in real estate company Tokyo Tatemono and rail company Keisei Electric Railway.

Potential Impact on LG Chem’s Management

Smith believes Palliser will be able to influence LG Chem's management even if it loses a vote on its proposals at an upcoming annual general meeting.

Lessons from Japan’s Corporate Governance Reforms

Based on his experience in Japan, he believes if the fund can gather a sufficient number of votes from minority shareholders, it could at least send a "strong signal" that many stakeholders want change. 

In Japan, the Tokyo Stock Exchange led the charge for corporate governance reforms, but in Korea, President Lee is pushing for change, Smith said.

"I really hope his emphasis can be sustained as we move through his presidency, because I can imagine there is quite some pushback, there's quite some tension developing with the chaebol group," he said. 

Response from LG Chem and Palliser’s Critique

In response to Palliser's efforts, LG Chem unveiled a plan in November to lower its stake in LG Energy Solution to about 70% and maintained its shareholder return plan of offering a 30% payout. 

LG Chem said, however, only 10% of the proceeds from the stake sale would be allocated toward dividends.

Palliser said the plan was disappointing, lacked details and the company should consider buybacks instead.

LG Chem declined to comment on the matter.

(Reporting by Heejin Kim; Editing by Ed Davies and Thomas Derpinghaus)