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The Hedge Fund Report: Fighting for Korea Fund

Hedge fund activists are becoming more involved in the life of companies where they own a stake. When the company is a closed-end fund, some go as far as recommending changes in the investment strategy. The latest example is David Nierenberg, who runs Nierenberg Investment Management and who owns 7.8% of the Korea Equity Fund (KEF).

In a recent 13D filing with the Securities and Exchange Commission, Nierenberg urged Korea Equity to focus on micro- and small-cap growth companies in Korea or merge with the Korea Fund (KF). In a letter to William Barker, the lead director, Nierenberg says he wants those changes to take place before a shareholder meeting in the spring.

Nierenberg earlier this year opposed another activist, Harvard University, in its fight to push fund manager Nomura (NMR) to liquidate the fund. Nierenberg's position prevailed, and the fund continued to trade. But in his letter, Nierenberg complains about the Korea Equity's return to double-digit discounts from net asset value and offers drastic measures to improve the fund's valuation.

"If this $70 million fund wants to stay in business, it needs to pick a differential strategy," Nierenberg said. Small stocks in Korea offer an attractive opportunity, he notes, as the country is the "most wired nation in the world." Currently, KEF is more focused on large-cap stocks.

If Nierenberg doesn't get his way, he will contact the 10 largest shareholders to take "the appropriate course of action," he told Nierenberg says that in this scenario, he hopes to win the backing of City of London Asset Management, the largest shareholder, which has about 25% of the shares.

Seat at the Table

Activist hedge fund Appaloosa Management, which owns 9.3% of Delphi's (DPHIQ) stock, is not happy about shareholder representation in the aftermath of the auto-part maker's bankruptcy. David Tepper, the fund's manager, said he has petitioned the bankruptcy court for the establishment of an equity committee. That won't change the fact that bondholders have priority on claims and assets over shareholders, but to Tepper, the fight is worth it because it is a matter of fairness. " Kmart, Mirant, Adelphia and Texaco, all those bankruptcies had equity committees," he argues.
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