[Interview] Darren Kang, CIO of Life Asset Management, who powerhouse triples assets under management during private equity plateau
In the wake of the Lyme and Optimus scandals, which caused trillions of dollars in buybacks to be suspended, sellers such as banks and securities firms are reluctant to sell private equity, and investors are hesitant to invest. Asset managers who make private equity funds have been hit hard, but there is a company that has grown in size during this cold period based on its management skills. This is Life Asset Management.
Life Asset Management’s assets under management (AUM) grew from KRW 311.7 billion at the end of 2022 to KRW 901.4 billion at the end of 2023. This is the highest AUM growth rate in the industry. Life Asset Management is a representative house that adopts ‘shareholder cooperation’ as its investment strategy. Shareholder cooperation means aligning the interests of large shareholders with those of ordinary shareholders.
Life Asset Management only invests in companies where the majority shareholder is happy to see the share price rise alongside the common shareholder. This strategy helped the fund outperform the market by more than 10 percentage points in 2023. Here’s the lowdown.
Life Asset Management’s assets under management (AUM) grew from KRW 311.7 billion at the end of 2022 to KRW 901.4 billion at the end of 2023. This is the highest AUM growth rate in the industry. Life Asset Management is a representative house that adopts ‘shareholder cooperation’ as its investment strategy. Shareholder cooperation means aligning the interests of large shareholders with those of ordinary shareholders.
Life Asset Management only invests in companies where the majority shareholder is happy to see the share price rise alongside the common shareholder. This strategy helped the fund outperform the market by more than 10 percentage points in 2023. Here’s the lowdown.
– What are Life Asset Management’s main private equity funds?
“Our main products are Life Korea ESG Enhancement and Life Engagement, which are based on the concept of proactive activism. This is about 200 billion won. Friendly activism is different from shareholder activism. Life Korea Corporate ESG Enhancement 1 (which invests in companies that agree to work together) was set up in July 2021, and its return since then is 40.2% as of Jan. 3. Last year, it returned 34.08%.
There is also Institutional Active, which mixes pro-activism with KOSPI. This fund is about 240 billion won. Our core strategy applied to unlisted stocks is the KOSDAQ Venture Fund. We are growing both business units simultaneously with equity and non-equity.”
There is also Institutional Active, which mixes pro-activism with KOSPI. This fund is about 240 billion won. Our core strategy applied to unlisted stocks is the KOSDAQ Venture Fund. We are growing both business units simultaneously with equity and non-equity.”
– The lineup is diverse.
“The lineup is based on investor demand. This does not mean that we invest in both value and growth stocks. We are basically value investors. We offer different types of products based on the needs of investors based on the company’s numbers, and we have gained the trust of a diverse investor base. We are a new company that has been launching equity funds since 2021, and we performed well in the bear market in 2021 and 2022, and we performed well in the bull market. Once we had some credibility, we saw a lot of institutional money come in from last summer.”
– Some houses use the concept of shareholder activism to call on listed companies to increase dividends or buy back shares.
“Our ‘friendly activism’ doesn’t mention dividends and share buybacks (to listed companies). We don’t think that’s relevant to corporate value. (These demands) are asking companies to give away what they have to investors while corporate value remains the same. It’s likely to be a one-off event or a short-term stock price boost.”
– What Life Asset Management is looking for.
“We want to make money over the long term by improving the value of the company and having the share price follow suit. The biggest undervaluation factor for Korean companies is their complexity. The older listed companies have a lot of businesses. The parent company is a semiconductor company, a chemical company, a golf course, and so on. The first thing we pay attention to is to organize the governance of all affiliates and subsidiaries to solve the undervaluation factor of this complex business structure. We advise (listed companies) on selection and focus.
The second is to advise listed companies on the efficiency of resource allocation. Because Korean companies are family-owned, there are some business units that would not have been maintained under professional management.”
The second is to advise listed companies on the efficiency of resource allocation. Because Korean companies are family-owned, there are some business units that would not have been maintained under professional management.”
– Do you have any specific examples of company value increases?
“There was a publicly traded company with a complex governance structure and a business spread across multiple subsidiaries. We made a proposal to reorganize the company into a holding company and maximize the value of the parent company’s shares for its shareholders. The company’s transformation has since been visible, and the stock price has nearly doubled in the past two years.”
– Growth stocks, such as secondary batteries, were all the rage in 2023. This has led some to question whether value investing will be a good investment strategy going forward.
“Value investing has been bad since 2014. Globally, value investing has underperformed the market. This is because growth has been driven by growth stocks over the past decade. Last year, in particular, battery companies went up several times as retail investors were influenced by YouTubers and fintech influencers (people who provide financial information on social media). But our view is that it’s not wrong to buy stocks of good companies on the cheap because the times are strange.”
– Why proxy activism.
“The reason why Korean companies are cheap is because they have governance problems or the majority shareholder doesn’t want to increase the share price for inheritance reasons. I think value investing should be tailored to Korea’s unique situation. That’s why we introduced the concept of ‘friendly activism’ when we founded Life Asset Management. But if they don’t accept our proposal, the listed company may be cheap, and it may be a good company, but it has problems with corporate governance, etc. By using an investment strategy that culls out these companies, Life Asset Management has outperformed the market 57% since inception.”
– On value stocks.
“These are stocks that are undervalued relative to their enterprise value. The reason why we did not increase our exposure to popular stocks such as batteries, electric vehicles, and semiconductors is that although they have a bright future and are valuable, they are so popular that the stock price appreciation we can expect is small. Unless we solve Korea’s backward resource allocation problems, we will continue to see the phenomenon of cheapness. I think it’s our mission to provide solutions to these issues.”
– Will the growth stock market continue?
“Value stocks have been marginalized compared to batteries and EVs in 2023. Last year, the fundamentals (financials) of companies didn’t even affect their stock prices. It was a very skewed market where normal investing was difficult. This year, it will be a much better environment for value investing than last year.”
– Why that is.
“There are two reasons. One is that (retail investors) can’t physically put more money in. In 2023, battery stocks are up 10x. The rush by retail investors has been unprecedented in history. South Korean retail investors’ investment in electric cars made global news. International media even categorized Korean retail investors as a separate group of Tesla shareholders. I don’t think we’re going to see much more of this mania for specific sectors and themes. Second is EPS growth. In 2023, during the recession, EPS of KOSPI companies fell by nearly 30%. Among major countries, Korea fell the most after Taiwan. Therefore, foreigners did not come in and institutional investors were weak. It was an individual-oriented market.
On the other hand, according to Bloomberg, Korea is expected to have the largest EPS growth rate this year compared to 2023 among major countries around the world. That’s better than Japan and India, which have been hot lately. I think corporate earnings are on track to improve this year after the 2023 lows. The reason why value stocks did so poorly last year is because of poor earnings. You can’t buy cheap when earnings are bad. In 2023, those marginalized stocks will improve their performance. If that happens, I think foreign and institutional demand will be more influential than in 2023.”
On the other hand, according to Bloomberg, Korea is expected to have the largest EPS growth rate this year compared to 2023 among major countries around the world. That’s better than Japan and India, which have been hot lately. I think corporate earnings are on track to improve this year after the 2023 lows. The reason why value stocks did so poorly last year is because of poor earnings. You can’t buy cheap when earnings are bad. In 2023, those marginalized stocks will improve their performance. If that happens, I think foreign and institutional demand will be more influential than in 2023.”
