HONG KONG/NEW YORK (Reuters) - U.S. billionaire Paul Singer appears to have paved the way for activist investors to fight for shareholders' rights where few hedge funds have ventured: Asia's biggest family-run firms.
In the past few months, Singer's $26 billion firm Elliott Management has taken on South Korea's Lee family, founders of the Samsung Group [SAGR.UL], as well as the Li family, which founded Hong Kong's third-largest lender Bank of East Asia Ltd (BEA) (0023.HK).
While Asian firms including Japan's Sony Corp (6758.T) and robot maker Fanuc Corp (6954.T) have faced off with activist investors such as Daniel Loeb of Third Point, the region's family-owned conglomerates have so far been largely left alone.
The opacity of some family-owned businesses, however, and the more lax corporate governance standards across Asia have made them attractive targets for hedge funds seeking fresh investment.
"Shareholder activism is going to be an increasing theme in Asia as more Asian companies access Western capital markets," said Singapore-based John Chessher, CEO of Cenkos Securities, an independent securities firm. "These kind of cases hopefully will bring about greater transparency."
Elliott did not respond to Reuters requests for comment for this story.
In a rare instance of shareholder activism in South Korea, the fund is in the process of trying to block an $8 billion proposed merger of two Samsung Group companies.
Elliott says the all-stock takeover offer by Samsung's de facto holding firm Cheil Industries Inc (028260.KS) undervalues sister firm and builder Samsung C&T Corp 000830.KS, and has filed a court injunction and lobbied shareholders to reject it.
The merger, however, is key to paving a smooth leadership succession within South Korea's biggest and most influential chaebol after patriarch Lee Kun-hee, 73, was hospitalised last year. On Thursday, Samsung C&T said it would continue with preparations for the deal.
Elliott appears to have been emboldened by its success earlier this year in opening a court inquiry into a HK$6.75 billion ($871 million) share placement by BEA to Sumitomo Mitsui Banking Corp [SUMFGI.UL].
BEA said the placement was necessary to bolster its capital. According to court documents seen by Reuters, Elliott said the placement was an attempt by the Li family to "strengthen the position of strategic shareholders... who provide them with protection from any attempts to interfere with their control of management of BEA".
Last year, however, the fund failed in its bid to raise the $5 billion bid Singapore's Oversea-Chinese Banking Corp (OCBC.SI) made to acquire Hong Kong's Wing Hang Bank.
Founded by Singer in 1977, Elliott is renowned for winning cases against Peru and Argentina for repayment of debts they took on at a deep discount during their financial crises.
Its clients include some of the biggest U.S. pension funds and last year, it returned 8.24 percent, more than double the average hedge fund's 4 percent return, and was up 0.6 percent in the first four months of 2015.
Elliott is credited with playing a role in the restructuring of U.S. firms including Trans World Airlines and Enron and foreign firms such as Telecom Italia SpA.
Some analysts say Elliott could also see similar success in Asia if it works with companies' management, not the courts.
So far, its record in the region is mixed:
"We believe the opportunity in Japan and Asia more broadly is for more friendly activism, or what we call constructivism where the hedge fund manager works with management, rather than challenging management publicly," said New York-based Michael Weinberg, chief investment strategist at Protege Partners which invests in some activist funds.
($1 = 7.7521 Hong Kong dollars)
Reporting by Denny Thomas in HONG KONG and Svea Herbst-Bayliss in NEW YORK; Additional reporting by Saikat Chatterjee in HONG KONG; Editing by Miral Fahmy