[Interview] Kang Sung-bu, who acquired Meritz Asset Management, "We will not remain only in private equity funds"

Meritz Asset Management Acquisition Details Under Negotiation
Using Public Offering Fund as Leverage to Popularize Activist Funds
Aiming to Enter the DC-Type Retirement Pension Market

[Asia Economy Reporter Hwang Yoon-joo] Kang Sung-bu, CEO of KCGI, said on the 4th, "The path we must take is not limited to the private equity fund market." This statement is based on the background that with the acquisition of Meritz Asset Management, (if they can also handle public funds) it will become easier to popularize shareholder activism, and they can also enter the defined contribution (DC) retirement pension market. Kang reiterated on the same day, "We need to prepare a bigger vessel to venture into a bigger world of investment."

Kang Sung-boo, CEO of KCGI. Photo by Hyunmin Kim kimhyun81@

Last month, KCGI signed a memorandum of understanding (MOU) with Meritz Financial Group regarding the sale of Meritz Asset Management and is currently coordinating the details. Foreign asset management companies and domestic private equity funds also expressed interest in acquiring Meritz Asset Management, but Meritz chose KCGI.

Regarding this, Kang explained, "We are a value investment management company operating funds aimed at improving corporate governance, and John Lee, former CEO of Meritz Asset Management, also managed corporate governance funds at Lazard Asset Management (in 2006, he managed the so-called Jang Ha-sung Fund, a Korean corporate governance fund)." He added, "The management philosophies of KCGI and Meritz Asset Management are similar." However, Kang noted, "They differ slightly in tactical aspects."

Kang is well-known in the industry as an expert on corporate governance. KCGI, led by him, is a native activist fund advocating a philosophy of improving corporate governance. A representative anecdote is their 2019 demand for governance improvement against the Hanjin Group, which effectively pressured former Chairman Cho Yang-ho to step down.

In a situation where the conditions for public fund management licenses have become stricter, if Kang acquires Meritz Asset Management, KCGI will be able to easily establish public funds. Public funds can include up to 10% of general stocks and 20% of Samsung Electronics in their portfolios. This means KCGI can gather shares of specific large-cap stocks targeted for activism through public funds as well. Unlike when centered on private equity funds, their operational flexibility will increase.

From Meritz Financial Group’s perspective, selling Meritz Asset Management is a better choice. Meritz Asset Management’s total capital is 36.1 billion KRW. In 2021, its operating revenue (sales) and operating profit were 20.2 billion KRW and 5.2 billion KRW, respectively. During the same period, Meritz Fire & Marine Insurance’s sales and operating profit were approximately 10.03 trillion KRW and 910.8 billion KRW, respectively. Meritz Asset Management is not a major affiliate and is not a company that generates significant profits relative to its name value. Especially in finance, 'trust' is crucial, and carrying the burden of Meritz Asset Management, whose image was damaged due to former CEO John Lee, is not easy.

Kang emphasized, "Meritz Asset Management needs someone who can minimize customer unrest and take over smoothly to ensure continuity in management," adding, "We plan to acquire it with our company’s funds, not by raising funds through a fund formation."

Within the asset management industry, it is viewed that Kang is quietly targeting the retirement pension market. The introduction of the 'Pre-designated Operation System (Default Option)' last year was the trigger. From the perspective of asset managers (public funds), the introduction of the default option can be a means to aggressively attract investment funds through retirement pension products.

According to the Financial Supervisory Service, as of the end of 2021, retirement pension reserves amounted to 295.6 trillion KRW, a 15.7% increase from the previous year (255.5 trillion KRW). The government and industry expect the retirement pension market to reach 1,000 trillion KRW by 2030.

Retirement pensions are broadly divided into three types: Defined Benefit (DB), Defined Contribution (DC), and Individual Retirement Pension (IRP). DC and IRP are managed directly by individuals who receive principal and interest. The default option is introduced in these two types. Especially, asset managers create products directly for the DC type retirement pension.

Kang appears to have his eye on the DC market. Private equity funds are legally prohibited from entering the DC retirement pension market. When asked if he is considering entering the retirement pension market, Kang avoided a direct answer, saying, "I don't know."

When pointed out that KCGI lacks experience in managing public funds, Kang responded, "Although KCGI is a private equity fund management company with K-Global Asset Management as the major shareholder, CEO Mok Dae-gyun, former Mirae Asset manager Kang Young-soo, Vice President Do Joong-yong, and outside director Kim Byung-chul are all recognized figures in the industry for their experience and management performance." CEO Mok is a first-generation overseas fund manager who worked at Mirae Asset Global Investments for 15 years. Outside director Kim Byung-chul, former president of Shinhan Investment Corp. (formerly Shinhan Financial Investment), is known in the industry as a 'bond genius.'

When asked about the timeline for completing the acquisition, Kang said, "It is not something to discuss at this stage," and drew a line by adding, "It depends on internal circumstances, and there is no reason to rush."

This content was produced with the assistance of AI translation services.