Posted on : Aug.25,2006 15:36 KST
Launched by market activist, fund takes aim at poor corporate governance
A private fund headed by Jang Ha-sung, a crusader for better corporate governance and professor at Korea University, has launched its investment activities with a major aim to enhance the nation’s lax management ethics and improve minority shareholders’ rights.
In a regulatory filing on August 23, the fund announced that it had acquired a 5.15 percent stake in Daehan Synthetic Fiber Co., an affiliate of family-run conglomerate Taekwang, in order to participate in its management. Besides this acquisition, the fund said it has made similar investments in other companies deemed to be undervalued in the world market.
The so-called "Jang Ha-sung fund" straddles the gap between civic movement and profit-driven business, as it aims to throw itself into the market in order to seek reforms from the inside out.
If the fund proves to be a success and others follow in its footsteps, it would mark a chance for the national market to move to a higher level of standards in terms of corporate governance. Also, its success would dispel the world market’s underestimation of South Korean stocks, or the "Korea discount," while at the same time improving minority shareholders’ rights.
Still, concerns linger over whether the fund will be able to stick to its original philosophy. Money, once in the market, tends to pursue profit. The fund’s success will hinge on whether it can keep itself from being tainted with market principles and will continue its reform-minded initiatives.
So far, the fund has attracted 130 billion won (US$132 million) in investment. However, disappointingly, none of the investors and operators of the fund comes from Korea. Sources said that Korean investors showed reluctance in joining the fund. The operation is being co-operated by U.S investment company Lazard Asset Management LLC.
There have been many cases in which the ends of goodwill do not always justify their means. The fund should bear in mind that it is at the center of public attention while it seeks to enhance corporate governance, a chronic issue in South Korean business circles.
The fund might face a dilemma should it succeed financially, as a huge amount of profit will end up in the hands of foreign investors. Professor Jang and civic groups might have to bear the brunt of anti-foreign investment sentiment among the general public, as for some there is little difference between Sovereign Asset Management’s attempt to takeover SK Corp. and civic groups’ activities aimed at improving corporate governance.
Against this backdrop, the Jang Ha-sung fund will probably try to lure more local investment so that it will be able to succeed beyond its professed objectives.
