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Hedge funds spur business debate in Asia

The rise of activist hedge funds in Asia has accelerated regional debates on corporate governance, good business and takeover defences, says Young-Joon Kim

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The recent campaign by activist hedge fund operators Carl Icahn and Warren Lichtenstein to shake up KT&G, the former South Korean tobacco and ginseng monopoly that still dominates the local cigarette market, has brought to the fore debates on corporate governance and takeover defences.

Activist funds across Asia

Precedent

It's worth noting that a veteran corporate raider like Icahn, fresh from his recent campaign against Time Warner, would almost certainly not have been attracted to Korea had not Dubai-based Sovereign Global Investment, which is a private investment vehicle but not a hedge fund, walked away from its two-year assault on South Korea's SK Corp in July last year with a five-fold return on its $142 million investment.

While Sovereign failed to achieve the corporate governance changes it was seeking from SK Corp and chose to exit, its long-running campaign against a company that was acknowledged to be badly run – and whose chairman was convicted of accounting fraud, false financial disclosures and breaches of fiduciary duty – changed the investing landscape.

The epic scale and profile of Sovereign's battle, and the size of its return, demonstrated that an aggressive foreign investor can extract value from Korean companies with under-valued or poorly managed assets.

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