An interview with Changhwan Lee, founder and CEO of Align Partners.
Align Partners is an activist investor established in 2021 and based in Seoul, Korea. Founded by Changhwan Lee, formerly of private equity firm KKR, Align has emerged as a leader in the ongoing resurgence in shareholder activism in Korea, with high-profile campaigns against K-Pop recording company SM Entertainment and leading bank JB Financial.
Korea has traditionally been hostile to shareholder activism. Are things changing?
Since COVID many things have changed. First, the number of retail investors in the Korea stock market has more than doubled to 14 million in 2021. That’s more than 30% of the voting population of Korea. So, [strong stock market returns] have become a high priority politically. Secondly, lots of new media has emerged, so people don’t watch TV as much. Previously the big corporations facing activism spent a lot of advertising budget to control the public sentiment, and even politicians. But it’s not possible anymore. The third change is the emergence of local activist Investors like us.
Will it now be easier for international activists to target Korean companies?
I think it’s going to be a lot better than before, but I think it’s still going to be hard, frankly. The Korean market is really unique. It is one of the few in the world where Google is not the dominant search engine and Walmart is not number one. Korean companies dominate the economy.
Also, I think it’s the Korean culture. There is still a lot of resentment from the Asian financial crisis and the 2008 crash when foreign investors were able to buy good Korean assets at deep discounts. So, I think it’s still going to be quite a tough market for foreign investors to do activism. But, at least for Korean activist investors, I think the window is now opening up.
Why did you choose to launch SM Entertainment as your first activism target?
We run campaigns at high profile companies only, because in Korean activism we’ve found that public attention is probably the most important point of success. And our fund was just $25 million when we started, so we really didn’t have a lot of money. But SM Entertainment was a good target because the market capitalization at the time was around $1.2 billion, so we were able to get 1%, which is probably the minimum threshold for doing anything. But in terms of public attention, it was massive because it was a K-pop company. It was beyond our expectations.
You initially launched campaigns at seven banks, most of them with very small holdings. But you only pursued the campaign at JB Financial, in which you have a 14% stake. Why not just focus on JB in the first place and ignore the other banks?
We wanted to do something to improve value at JB and Woori Financial, because our investments are bigger in those two banks. But we realized that if we only made demands to those banks it would be very hard for them to do anything without a lot of scrutiny by the financial authorities. So, we thought very hard and talked to everybody in the financial sector and decided the best strategy would be to go against all of the seven banks. For us, it means a little bit of extra work, but we knew that the shareholders would be very supportive anyway, and the threshold for making proposals at these banks was only 0.1%, because of the special role the banks play in the economy.
How does your private equity background assist you in what you currently do?
I learned a lot about how you operate a business, how you value your business as a whole and how to think long-term in terms of value creation. What I do is very much like private equity. Our portfolio is super highly concentrated, and we don’t trade at all. Our policy is to stand directors where we can actively engage with the board and stay a long time to really, substantially, meaningfully and structurally improve value. Our investment in JB Financial has a five-year horizon.
Korea had a new president last year and a new head of the National Pension Fund. How supportive is the new administration towards activism.
I think the government is generally positive about activism and trying to do something to fix the Korea discount [versus other markets]. I think it is because it is politically favorable because a lot of voters now invest in the Korean retail market. But at the same time, they recently attacked the banks for making ”easy money” because they know they are an easy target and there’s no controlling shareholder. I’m a little disappointed because [President Yoon] is supposed to be business-friendly, market-friendly. But there’s nothing much we can do at the moment, and as I said, we’ll be very long-term investors.