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South Korea's activist funds, legal scholars and academics will launch a corporate governance association.

According to financial investment industry sources on November 8, the corporate governance association will be launched on December 12. South Korea's activist hedge funds, scholars and academics who acknowledge the needs of the improvement in corporate governance has created the organization. It aims to enhance transparency in corporate governance to resolve the issue of so-called Korean discount.

The organization initially started by a number of activist investors, scholars and academics who are aware of the corporate governance issue, but the size has grown with more members joining the movement. The preparation work for the launch reportedly has accelerated with forming an executive body and formulating internal bylaws.

So far domestic activist investors have taken individual actions against any legal issues occurred during the course of exercising rights. The association is likely to review common legal issues and research methodologies related to shareholders exercising their rights.

"Shareholder activism in the country has just started and actions have been individually. There has been no such thing to act as pivot to jointly react to improvement of system and legal issues. The organization has been formed to take more systematic and concerted approach in handling these issues," said an industry source.

Industry watchers say it would be hard for asset management firms to participate directly in the organization due to a conflict of interest. Accordingly, it is more likely that fund managers who work for activist funds and scholars and academics will join the association in a private capacity. The possibility of asset management firms' joining the association in the longer term can't be ruled out.

The launch of association has been led by Value Partners Asset Management President Kim Bong-ki. Value Partners is South Korea's first generation activist hedge fund. The fund has waged activist campaigns against Hyundai Home shopping, KISCO Holdings, and AtlasBX. Value Partners also adopted Stewardship Code in the second half of this year.

"Kim, one of the first value investors in the country, has built a friendly relationship with other domestic value investors. He has long been raising issues of fundamentally healthy Korean companies being undervalued in the stock market. He sees it is corporate governance that has to be improved to address this problem," said a second industry source.

(By reporter Lee Hyo-beom)