Private equity funds (PEFs) were synonymous in South Korea with “predatory capital” and “corporate raiders,” drawing criticism for prioritizing short-term profits over corporate health. (Photo: generated by ChatGPT)
SEOUL, Nov. 29 (Korea Bizwire) – For years, private equity funds (PEFs) were synonymous in South Korea with “predatory capital” and “corporate raiders,” drawing criticism for prioritizing short-term profits over corporate health. The perception stemmed from practices such as aggressive cost-cutting, asset sales, and layoffs, which were viewed as tactics to maximize returns at the expense of long-term growth.
However, attitudes are shifting as some PEFs adopt strategies emphasizing corporate governance reform, a move that resonates with a growing base of informed retail investors and shareholders demanding accountability.
Legacy of Criticism: Short-Term Gains at High Costs
PEFs traditionally operate by acquiring companies, improving their financials, and selling them for profit within a decade, distributing returns to limited partners like pension funds. While this model creates value for investors, critics argue it fosters short-termism, often involving harsh cost-cutting, layoffs, and asset sales.
Historical episodes, such as foreign private equity firms acquiring undervalued Korean companies during the 1997 Asian financial crisis, deepened public skepticism. Cases like Lone Star’s controversial acquisition and sale of Korea Exchange Bank left enduring scars, associating private equity with predatory capitalism.
Rise of Activist Strategies
In recent years, activist PEFs have emerged in South Korea, demanding better shareholder returns and governance reforms. This trend reflects a broader global shift toward corporate accountability, but it has not been without resistance.
According to Diligent Market Intelligence, the number of South Korean companies targeted by activist campaigns rose to 77 in 2023, a 57% increase from the previous year, trailing only the U.S. and Japan. While proponents view these efforts as necessary to address the “Korea Discount”—the chronic undervaluation of Korean equities—corporate leaders often regard them as disruptive interference.
“Companies make decisions with a perpetual horizon in mind, but activist investors operate on a much shorter timeline, often just 3–5 years,” said an executive at a proxy advisory firm. “This creates tension, as activists push for aggressive changes to maximize returns within that window.”
Shifting Perceptions: A Role in Reform
The 2022–2023 campaign by Align Partners Asset Management against SM Entertainment exemplified the growing influence of activist PEFs. Similarly, buyout-focused PEFs like MBK Partners have begun framing their investments as opportunities to enhance governance, gaining broader acceptance.
Critics of Korean corporate practices argue that governance deficiencies—such as surprise equity offerings, insider-favored mergers, and dual listings—undermine shareholder rights. Activist PEFs, by challenging these norms, are now seen by some as catalysts for change.
For example, Singapore-based activist fund Flashlight Capital Partners (FCP) pressured KT&G to improve shareholder returns. While reactions to FCP’s campaign were mixed, industry observers credited the fund with pushing the tobacco company to adopt strategies that garnered praise from analysts.
“Corporate governance reform aligns stakeholder interests and improves transparency, which ultimately drives shareholder and corporate value,” said Lee Sang-heon, an analyst at IM Investment Securities. “Activists are playing a key role in addressing these issues in the Korean market.”
A Balanced View
Despite the shifting sentiment, not all voices agree on the role of PEFs. Critics warn of heightened competition among funds and diminishing returns in an increasingly crowded field, forcing PEFs to pursue more aggressive tactics.
“Private equity funds, whether activist or traditional, should be evaluated neutrally,” said Lee Nam-woo, chairman of the Korea Corporate Governance Forum. “Their goal is profit, not philanthropy or malice—they’re simply instruments of investment.”
As South Korea’s financial landscape evolves, the role of PEFs in shaping corporate governance appears poised for greater significance, with the potential to redefine investor-corporate dynamics in the years ahead.
Ashley Song (ashley@koreabizwire.com)
