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Korea Fund to Stay Closed-End

Shareholders of the Korea Equity Fund (KEF) rejected a proposal backed by Harvard College to liquidate the fund and fire investment adviser Nomura Asset Management, one of the fund's directors said.

Harvard, which through a hedge fund managed by Sowood Capital Management is the fund's biggest shareholder, publicly supported liquidation of the closed-end fund on grounds it traded at too big a discount to its net asset value. Harvard favored transforming Korea Equity to open-ended status.

The proposal had the support of proxy adviser Institutional Shareholder Services but in the end, advocates failed to get the 51% of the vote they needed to effect the change. The result of the vote has yet to be disclosed publicly.

The campaign to end Korea Equity's closed-end status took a hit in June when David Nierenberg and his Nierenberg Investment Management defected from the Harvard side, citing a narrowing discount to net asset value, among other things. His fund owned 7.5% of the fund's shares.

While not yet aware of the vote's formal outcome, Nierenberg said his position was the correct one for several reasons, including the existence of tax losses in the fund that could be used to shield future capital gains.

From a tax perspective, "it is not appropriate to destroy that asset," he said. "I don't think that Harvard cares about that because they are an endowment. But we do." With the discount narrowed, Nierenberg said, the fund has a bright future, given the prospects for growth in Korea.

The view was echoed by William Barker, independent director for the fund: "We're doing well. Why sell now?"

Baker called the proxy battle "cordial" and said "nobody killed anybody." As for the combatants' motives, he quipped: "Nierenberg is from Yale. Maybe it's a Yale versus Harvard fight."

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