Palliser Capital Notes Rising Korean Shareholder Activism
Palliser Capital says Korean investors are increasingly backing efforts to challenge conglomerate practices. The fund is currently seeking reforms at LG Chem.
The United Kingdom-based hedge fund Palliser Capital reports that South Korea is increasingly embracing shareholder activism, with local investors joining efforts to challenge the business practices of family-controlled conglomerates. James Smith, the chief investment officer of Palliser Capital, noted that communication with domestic investors has improved, encouraging their involvement in the fund's proposals to unlock value at LG Chem, Ltd.. Currently, the fund is advocating for LG Chem, Ltd. to reduce its 80% stake in its subsidiary, LG Energy Solution.
James Smith, who previously worked at Elliott Investment Management during high-profile campaigns involving Samsung Electronics Co., Ltd. and Hyundai Motor, observed a significant shift in the market climate over his 25-year career.
It’s a different environment now.
According to James Smith, the previous negativity toward foreign investors has diminished as more local activists adopt similar strategies. This transition is being aided by a regulatory push from the administration of President Lee Jae Myung to resolve the \"Korea discount,\" a term referring to the lower valuations of South Korean firms compared to global peers due to low dividends and the dominance of opaque chaebols.
Ten to 12 years ago ... it felt like a very strong presumption of negativity of foreign investors.
Palliser Capital, which is among the top 10 shareholders of LG Chem, Ltd., has a history of successful engagements with chaebols, including achieving changes at the holding company of SK hynix Inc. in 2024. James Smith also highlighted his experience in Japan, where he invested in companies like Tokyo Tatemono Co., Ltd. and Keisei Electric Railway.
In Japan, the Tokyo Stock Exchange led the charge for corporate governance reforms, but in Korea, President Lee is pushing for change.
In response to the fund's proposals, LG Chem, Ltd. recently announced a plan to reduce its stake in LG Energy Solution to approximately 70% and maintain a 30% payout ratio. However, Palliser Capital expressed disappointment, noting that the plan lacked detail and that only 10% of the proceeds from the stake sale would be allocated to dividends. The fund has urged the company to consider share buybacks instead. James Smith remains optimistic that strong support from minority shareholders will signal a demand for change, even if the fund's specific proposals are not immediately adopted at the annual general meeting.
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.
