[News Figures] Lee Chang-hwan, CEO of Align Partners, Advocating for the '1% Rights'

Following the Banking Sector, SM Entertainment Challenges to Enhance Shareholder Value
Investment Experts in Securities Firms Also Closely Watch Every Move

[Asia Economy Reporter Park So-yeon] When Kakao announced on the 7th that it had secured a 9.05% stake in SM Entertainment, the market’s focus was not on the largest shareholder, General Producer Lee Soo-man, nor on the SM board of directors. It was on the words of Lee Chang-hwan, CEO of Align Partners, who holds a 1.1% stake in SM. He is the next-generation star of activist funds, attracting attention from both institutional and individual investors recently.

He is the representative of an activist fund that manipulates a company’s stock price and governance with just a 1% stake. Recently, investment experts have been paying close attention to every move Lee makes because money follows where he goes. A senior official at an asset management firm said, "Lee sends letters to institutions, and when you read them, there is nothing incorrect in his points," adding, "It feels like he acts for the advancement of the Korean capital market and for the benefit of many ordinary shareholders."

Lee Chang-hwan, CEO of Align Partners
[Photo by Align Partners]

The stock prices of companies Lee has intervened in have also risen considerably. While the KOSDAQ market fell 23% last year, SM’s stock price rose 22%. The stock prices of the four major financial holding companies?KB, Shinhan, Hana, and Woori?whose shareholder returns Lee demanded to increase, have also risen more than 20% since the start of the new year.

'Next-Generation Activist' Lee Chang-hwan: How He Shook the Capital Market

On the 7th, Lee Soo-man defined Kakao’s stake acquisition as a ‘management rights dispute,’ and with Lee Chang-hwan declaring support for Kakao, SM’s closing price on the 8th rose 8,600 won (9.54%) from the previous day to 98,700 won. Compared to February last year, when Lee first started the campaign to improve SM’s governance and enhance shareholder value, the stock price has more than tripled. At that time, the stock price hovered around 30,000 won, but now it is eyeing the 100,000 won mark.

In a phone interview with Asia Economy, Lee said, "I was aware that talks were going on between Kakao and SM regarding the stake acquisition," and explained, "I have drawn a line that I absolutely cannot agree to any dilution of existing shareholders’ stakes or a drop in stock price due to Kakao’s new share acquisition." He expressed confidence, saying, "It seems to be a good matter that can be sufficiently persuaded within the necessary scope. You can tell from the current stock price reaction."

After securing a 1% stake in SM, Lee actively participated in management through shareholder proposals, demanding governance improvements. He directly challenged excessively low dividends and annual service contracts worth hundreds of millions of won with then-chairman Lee Soo-man’s personal company. At the shareholders’ meeting in March last year, SM appointed an auditor recommended by Align Partners and minority shareholders through a vote. The contract with Lee Soo-man’s personal company, Like Planning, was also terminated early. Chairman Lee stepped down from all management-related titles, leaving only the title of ‘General Producer,’ and withdrew from frontline management.

Recently, the new management accepted Align Partners’ demands and announced the future management strategy ‘SM 3.0,’ strengthening governance improvements. SM plans to recommend Lee Chang-hwan as one of the newly appointed outside directors at the regular shareholders’ meeting. SM also plans to disclose policies to strengthen shareholder communication to industry-leading levels and to return at least 20% of net income to shareholders. In this situation, as Kakao rose to become the second-largest shareholder, Lee Soo-man’s stake decreased from 18% to 16.8%.

Previously, Lee also caused a stir in the banking sector. Despite record-breaking earnings, major financial holding companies were stingy with shareholder returns, but Lee demanded shareholder return policies and brought about noticeable changes. In January, Lee sent an open letter to seven financial holding companies urging the introduction of capital allocation policies and medium-term shareholder return policies. The securities industry saw a ‘bank stock rally’ fueled by expectations of shareholder returns. Bank stocks surged about 15% in January alone.

Actual changes followed. BNK Financial Group was the first to expand shareholder returns, setting the dividend payout ratio 2 percentage points higher than the previous year at 25%. Along with this, it announced a share buyback worth about 16 billion won, approximately 2% of net income. KB Financial Group maintained a cash dividend payout ratio of 26% as in 2021 but approved a 300 billion won share buyback and cancellation. As a result, the total shareholder return rate last year was 33% (26% cash dividend payout + 300 billion won share buyback), 7 percentage points higher than in 2021. Shinhan Financial Group also achieved a total shareholder return rate of 30%, including a decision to acquire and cancel 150 billion won worth of treasury shares.

Born in 1986, ‘Global Standard’ Lee Chang-hwan... Predicting Structural Reform of Korean Listed Companies Where Only Major Shareholders Have Authority

Born in 1986, Lee Chang-hwan graduated from Seoul National University’s Business Administration department and worked at Goldman Sachs before joining KKR’s Seoul office. He was famous as a quiz hero on a broadcasting station during his teenage years. He reportedly began to take an interest in investment and management while helping his mother with stock investments in high school. During his exchange student period in Singapore while attending Seoul National University, he was unexpectedly selected for a summer internship at the global investment bank Goldman Sachs. In 2012, when KKR opened its Seoul office, he joined as a founding member. Although relatively young at 27, he participated in almost all of KKR’s domestic investments and exits, including the sale of OB Beer, investment in TMON, and acquisition and sale of LS Group’s copper foil and thin film business units. In an IB industry dominated by overseas-educated professionals, his purely domestic background and experience dealing with large corporations at a young age are his greatest assets.

Later, in 2021, amid the Donghak Ant movement frenzy, he felt the necessity of shareholder activism and left KKR to establish Align. Lee read the trend of growing interest from minority shareholders as the number of domestic individual investors surged to 14 million during the COVID-19 boom.

He plans to raise institutional funds overseas and expand assets under management (AUM) to about 1 trillion won within the year, discovering a second SM and similar companies. Lee said, "Align will persuade investors by showing cases of corporate value improvement created through active shareholder activities in Korea, such as with SM and financial holding companies, and invest in Korean listed companies in the same way." He emphasized, "Many Korean listed companies have irrational structures where major shareholders hold all authority but bear no legal responsibility, and I want to improve this structure."