Dalton Investments LLC is taking a "we're all in this together" approach to promoting minority shareholders rights in South Korea, a market better known for giving the cold shoulder to activist investors such as Elliott Management Corp.
In 2015, when New York-based Elliott contested a Samsung Group reorganization that would entrench founding family control, local media framed the gambit as an outsider trying to come in and make a quick profit, noted James Lim, a senior research analyst with the Los Angeles-based Dalton, an Asian equity boutique. "It didn't really go well," he added.
Just a few years later, a lot has changed, most importantly the May 2017 presidential election victory of Moon Jae-in, a politician pledged to pursue "economic democratization," Mr. Lim said.
With the "tug of war" between vested corporate interests and those fighting for reform more evenly matched, Dalton decided the time was right to appeal to the "victims" of poor corporate governance.
"Korean companies are doing well, but shareholders and households haven't," Mr. Lim said. Poor capital allocation decisions have effectively shaved more than $1 trillion from Seoul's market capitalization and roughly $80 billion from NPS' domestic equity holdings, he noted.
On Feb. 20, Dalton issued a broad set of proposals, calling on South Korea's 638.8 trillion won ($566 billion), Jeonju-based National Pension Service to actively exercise shareholder rights with a focus on capital allocation; the South Korean National Assembly and the South Korean government to reduce taxes on dividends and inheritance; and the South Korean people to follow the ongoing fight for better corporate governance on Dalton's website— improvekorea.com — and support the proposals found there.
The graying of South Korea's demographic profile is increasing the urgency of boosting the stock market's roughly 1% annualized real return over the past nine years, Mr. Lim said.
NPS hasn't responded yet to Dalton's proposals, but with the pension fund's enormous influence and power and its recent signing on to South Korea's stewardship code, "we see them as part of the solution," Mr. Lim said.