[Exclusive]"We are the largest shareholder, but will not join the board" Miri Capital withdraws plan to appoint Stick Investment directors

Withdrawal of plan to join the board...No involvement in management
Due to risk of homegrown Stick Investment being classified as 'foreign'
Existing management to remain for now...Generational shift delayed

Miri Capital, a U.S.-based asset management firm that has become the new largest shareholder of Stick Investment, a first-generation homegrown private equity (PEF) manager, has decided not to join the board of directors. Despite being the largest shareholder, it is interpreted as a decision not to be directly involved in management, but instead to accompany Stick Investment as a long-term shareholder while maintaining the firm's independence.

Will not join the board..."Maintain strict independence"

According to the investment banking (IB) industry on the 12th, Miri Capital recently conveyed this policy to Stick Investment and other major shareholders. Miri Capital had initially considered appointing two directors, including a non-executive director and an outside director, at next month's annual general meeting of shareholders in order to join the board, but abruptly withdrew this plan. This is seen as an attempt to minimize any disadvantages and constraints that could arise from Stick Investment, formerly a homegrown PEF manager, being categorized as a foreign asset management firm.

A PEF industry official explained, "If the equity stake exceeds 30%, or if foreign personnel join the board, the authorities may view the firm as a foreign asset manager," adding, "In particular, there is no clear-cut standard regarding board entry and the criteria are ambiguous, so this appears to be a decision made to block such concerns at the source."

The industry view is that although the financial authorities do not officially impose discrimination or disadvantages solely because a firm is foreign, strategic constraints can arise in practice. In particular, the firm could be excluded from institutional investors' (LPs') implicit 'preference for domestic managers.' There are many cases in which pension funds distinguish between domestic and foreign managers in the process of selecting external managers, or give extra points to domestic managers. In addition, the administrative and regulatory burden associated with having a controlling shareholder overseas, as well as emotional risks such as concerns over a potential 'hit-and-run' exit, are also cited as factors of concern.

Miri Capital appears to have chosen a strategy of respecting the existing management structure and pursuing long-term growth as a shareholder, rather than directly participating in management while bearing these burdens. It is also reported to be considering plans to meet major domestic LPs in person to explain this policy and to dispel concerns about any potential future change in the controlling shareholder.

An IB industry official said, "Miri Capital has sent a signal that it intends to separate ownership and management and play a role closer to that of a financial investor (FI) in the American style," adding, "It can be interpreted as a message that it will maintain the existing management team and pursue long-term growth together."

Delayed generational shift...Concerns over the departure of executives born in the 1970s

However, some point out that this choice has increased the likelihood that the generational shift within Stick Investment will be further delayed. While making clear its intention not to intervene in management control, Miri Capital also conveyed to Stick Investment its intention to maintain the existing management structure as much as possible.

After founder Chairman Do Yonghwan stepped down, Stick Investment is scheduled to shift to a structure in which Vice Chairman Kwak Donggeol serves concurrently as chairman of the board and chief executive officer (CEO). Given that Vice Chairman Kwak's term as an internal director runs until March next year, there had initially been expectations that this year would mark a turning point for a change in the management structure. However, with Miri Capital's policy shift increasing the likelihood that Vice Chairman Kwak will be reappointed, the current structure is expected to remain in place for a considerable period of time.

Within the domestic PEF industry, Stick Investment has been regarded as a manager where the generational shift has been relatively slow. Until recently, key decision-making had been led by Chairman Do (born in 1957), Vice Chairman Kwak (born in 1959), and CEO in charge of risk management and strategy, Kang Shinwoo (born in 1960). This contrasts with the situation at many other managers that have transitioned to structures centered on executives born in the 1970s. Activist fund Align Partners, which holds a 7.63% stake, also demanded a generational shift, and Stick Investment included related measures in its plans to enhance corporate value, but these have effectively been put on hold.

An IB industry official said, "As the generational shift is delayed, the disappointment of key working-level staff and next-generation partners may deepen," adding, "Concerns over the possible departure of some personnel are being raised with increasing frequency."