Activist funds have surged since the coronavirus pandemic. “Let go, let go, attack large blue-chip stocks without exception”

Last year, 252 companies around the world were attacked, a 45% increase compared to the pandemic.
The atmosphere is spreading again as stock prices plummet from 2022 after the liquidity party ends.
The domestic situation is no different; small and medium-sized businesses are also targets of attack if profits are certain

Since the coronavirus pandemic, attacks on companies by global activist investors have increased significantly by more than 45%. As stock prices plummeted after the pandemic and fund returns worsened, hedge funds appear to have launched activist attacks regardless of company size or country. In the past, activist funds focused on increasing corporate value through corporate mergers, restructuring, management replacement, and share buybacks, but recently, they have been known to be deeply involved in corporate management strategies by occupying seats on the board of directors.

Hedge funds attempt activist attacks as fund returns worsen in 2022

According to a report by the Financial Times (FT) on the 7th (local time) citing a report from investment bank Lazard, 252 companies around the world were attacked by activist investors last year. This is an increase of nearly 45% compared to the time of the pandemic. In particular, general funds, which carried out activist attacks for the first time last year, accounted for 40% of the total number of disputes, and the number of cases in which they achieved their goals immediately after such attacks and reached an agreement within a week amounted to 37% of the total.

The FT cited worsening stock market conditions last year as the reason for the increase in activist attacks by hedge funds. Cases of attacks on parent companies of activist funds around the world decreased from 2019 in 209 to 19 during the COVID-173 pandemic, but began to rapidly increase again from 2022. The analysis is that disputes have increased as stock prices, which soared during the pandemic, have since plummeted due to the sharply tightening monetary policies of central banks in major countries.

Attacks by activist funds were carried out not only in the United States but also around the world, regardless of country or type of company. According to the FT, there were 69 attacks related to mergers and acquisitions (M&A) in Europe last year, and there were 44 requests for governance improvement led by hedge funds in the Asia-Pacific region. In addition, large blue-chip stocks such as Starbucks and Walt Disney have also been attacked by activist funds, and there have been cases where activist funds themselves, such as the ‘Carl Icahn Fund’, have become targets of attack.

An activist fund refers to a fund that secures shareholder status by purchasing corporate stocks and then pursues profits by actively influencing corporate decision-making. The main purpose of the operation is to quickly increase corporate value through corporate sales or restructuring. “Attacks by global activist investors are currently at an all-time high not only in North America, but also in Asia Pacific and Europe,” said Rich Thomas, managing director of Lazard’s Capital Markets Advisory Group. “Japan, where caution has emerged, is recognized as a preferred investment region for activist funds,” he explained.

Recent status of domestic activist funds

Activist fund activities are becoming more active in Korea as well. After the 1997 Asian financial crisis and the opening of the stock market, the activities of hedge funds with foreign management participation targeting domestic companies began. Since then, large corporations have mainly been targeted by activist funds, but recently, the number of companies targeted has increased regardless of company size. It is increasing significantly.

According to a report released by the Capital Market Research Institute in April last year, the number of companies targeted by activist funds increased rapidly from only 4 in 2017 to 3 in 2021 and 27 in 2022. The number of domestic private equity funds with management participation also nearly doubled, from 47 in 2018 to over 580 in 2021. In 1,000, there were 2 newly created private equity funds, the highest ever, and the committed amount also reached an all-time high of 2021 trillion won as of the third quarter of 211.

The main reason for the increase in domestic activist fund activities is the strengthening of shareholder return policies with the introduction of the Stewardship Code in 2016. In particular, as the National Pension Service announced the introduction of the Stewardship Code in 2018, the activities of activist funds became more active due to the strengthening of shareholder rights. In addition, the separate election of the audit committee and the 2020% restriction on voting rights of the largest shareholder, which were revised in December 12, also appear to have accelerated the activities of activist funds.

Among experts, there is an analysis that as domestic activist fund activities become more active, the management involvement of these funds should lead to improvement of long-term shareholder value. An official at the Korea Capital Market Research Institute said, “While in the past activist funds focused on increasing corporate value through corporate mergers, restructuring, management replacement, and share buybacks, they have recently become deeply involved in corporate management strategies by taking seats on the board of directors. “As the active activities of activist funds can have a huge impact on corporate management, there is a need for policy support to have a positive impact not only on the short-term stock price increase or performance of the company, but also on the improvement of corporate governance and long-term value,” he said. “There is,” he suggested.