Weiss Korea Opp: Annual Report and Audited Financial Statements
02/05/2023 11:30
WEISS KOREA OPPORTUNITY FUND LTD.
LEI 213800GXKGJVWN3BF511
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Weiss Korea Opportunity Fund Ltd. (the “Company”) has today, released its
Annual Financial Report for the year ended 31 December 2022. The Report will
shortly be available for inspection via the
Company's website www.weisskoreaopportunityfund.com.
For further information, please contact:
Singer Capital Markets Limited James Maxwell/ Justin McKeegan – Nominated Adviser James Waterlow – Sales +44 20 7496 3000
Northern Trust International Fund Administration Services (Guernsey) Limited Samuel Walden +44 1481 745385
Financial Highlights
As at As at
31 December 2022 31 December 2021
£ £
Total Net Assets (1) 127,080,493 166,541,145
Net Asset Value ("NAV") Per Share (2) 1.83 2.40
Mid-Market Share Price 1.81 2.47
As at Since inception
31 December 2022
NAV Return (3,4) -21.34% 123.91% (5)
Benchmark Return (6,7) -18.22% 50.93%
As at As at
31 December 2022 31 December 2021
Portfolio Discount* 51.68% 52.16%
Share Price Premium/Discount (8) -1.56% 2.79%
Fund Dividend Yield (9) 3.53% 2.12%
Average Trailing 12-Month P/E Ratio of Preference Shares Held (10) 4.0x 6.1x
P/B Ratio of Preference Shares Held (11) 0.31 0.46
Annualised Total Expense Ratio (12) 2.04% 1.80%
*Portfolio Discount
The portfolio discount represents the discount of WKOF’s actual NAV to the
value of what the NAV would be if WKOF held the respective common shares of
issuers rather than preference shares on a one-to-one basis.
As at close of business on 27 April 2023, the latest published NAV per Share
was £1.87 and the Share Price was £1.84.
Company Summary
The Company
Weiss Korea Opportunity Fund Ltd. (“WKOF” or the “Company”) was
incorporated with limited liability in Guernsey as a closed-ended investment
company on 12 April 2013. The Company’s shares were admitted to trading on
the Alternative Investment Market (“AIM”) of the London Stock Exchange
(the “LSE”) on 14 May 2013.
The Company is managed by Weiss Asset Management LP (the “Investment
Manager” or “WAM”), a Boston-based investment management company
registered with the Securities and Exchange Commission in the United States of
America.
Investment Objective and Dividend Policy
The Company’s investment objective is to provide Shareholders with an
attractive return on their investment, predominantly through long-term capital
appreciation. The Company is geographically focused on South Korean
(“Korean”) companies. Specifically, the Company invests primarily in
listed preference shares issued by companies incorporated in South Korea
(“Korea”), which in many cases trade at a discount to the corresponding
common shares of the same companies. Since the Company’s admission to the
AIM, the Investment Manager has assembled a portfolio of Korean preference
shares that it believes are undervalued and could appreciate based on the
criteria that it selects. The Company may, in accordance with its investment
policy, also invest some portion of its assets in other securities, including
exchange-traded funds, futures contracts, options, swaps and derivatives
related to Korean equities, and cash and cash equivalents. The Company does
not have any concentration limits.
The Company intends to return to Shareholders all dividends received, net of
withholding tax, on an annual basis.
Investment Policy
The Company is geographically focused on South Korean companies. Some of the
considerations that affect the Investment Manager’s choice of securities to
buy and sell may include the discount at which a preference share is trading
relative to its respective common share, dividend yield and its liquidity,
among other factors. Not all of these factors will necessarily be satisfied
for particular investments.
Preference shares are selected by the Investment Manager at its sole
discretion, subject to the overall control of the Board of Directors of the
Company (the “Board”).
From time to time, the Company purchases certain credit default swaps on the
sovereign debt of South Korea and put options on iShares MSCI South Korea ETF
(“EWY”) as general market and portfolio hedges, but generally did not
hedge its exposure to interest rates or foreign currencies during the year
ended 31 December 2022 (2021: Nil). Please see additional information about
the nature of these hedges in the Investment Manager’s Report.
Investment Process
The Investment Manager monitors the discounts and yields on the universe of
Korean preference shares as well as events or catalysts that could affect
preference share discounts leading to material price changes.
Multiple criteria are used to rank and calculate the returns for each
preference share, including but not limited to:
· The discount that the preference share is trading at relative to
its common share
· Expected dividend yield
· Future catalysts or events
· Management quality
· Fundamentals of the company
· Market impact from entering and exiting our position
We expect to remain close to fully invested as long as the opportunity set
remains attractive.
Why South Korea?
The future of the South Korean economy looks promising. The global success of
companies like Samsung Electronics, LG Electronics and SK Hynix stimulates
other areas of the South Korean economy both through the demand for
intermediary goods and the demand for services by the workers at these
companies. In addition, South Korea has emerged as one of the world’s most
innovative countries as it:
• Ranked 1st in the Bloomberg Innovation Index for eight of the
last nine years (13)
• Filed the highest number of patent applications relative to GDP
in 2021(14)
• Has an exceptionally high credit rating on its sovereign debt.
South Korea was rated higher than Japan and the U.K. by Moody’s, S&P, and
Fitch(15).
• Ranked 7th largest exporter in the world in 2021(16).
• Ranked 13th largest economy by GDP in the world in 2022(17).
• Ranked 5(th) in the World Bank’s Ease of Doing Business Report
in 2020(18).
• Ranked in the top 10% in each of reading, mathematics and
science Programme for International Student Assessment (PISA) test scores in
2018(19).
South Korean companies are thus a key part of the value chain in some of the
world’s most exciting industries, such as electric vehicles, 5G technology
and smartphones. The country also boasts a high GDP per capita, one of the
lowest government debt/GDP ratios of any country, large foreign exchange
reserves, and low levels of unemployment.
Although its population is ageing, the general education level of South
Korea’s work force is increasing. South Korean students are consistently
among the top performing students in the Programme for International Student
Assessment tests, including the subtest on critical thinking. This provides a
pool of talent that can be tapped for future growth.
Index Name (20) P/E Ratio P/B Ratio
Nifty Index (India) 22.4 3.0
S&P 500 (US) 19.1 3.9
Nikkei 225 (Japan) 13.9 1.6
FTSE 100 (UK) 11.6 1.6
Shanghai Composite (China) 10.9 1.3
Hang Seng Index (HK) 10.4 1.1
TAIEX (Taiwan) 9.6 1.8
KOSPI 200 (S. Korea) 7.2 0.8
The South Korean stock market appears fundamentally cheap relative to other
equity markets. As of 31 December 2022, the KOSPI 200 trades at a 48% lower
price to earnings ratio and a 60% lower price to book ratio compared to the
average of the major indices shown in the table above. This cheap valuation
can be largely explained by the historically poor corporate governance
displayed by the major South Korean conglomerates. However, events over the
last several years indicate a trend of awareness and improvements in corporate
governance. There were a record-high 47 publicly traded South Korean companies
subject to activist demands in 2022, which represented a 74% increase
year-over-year compared to 2021(21). The Investment Manager report sets forth
some examples of improvements in corporate governance that have taken place
during the most recent 12 months. The underlying thesis of our strategy is
that improved corporate governance will attract more investors to South Korea
and the companies in which we invest which will, over time, increase the value
of the common shares and narrow the discount of the preference shares held in
WKOF’s portfolio, thus increasing the value of WKOF’s holdings.
Korean Preference Shares
Many of the largest companies in the Korean market issue preference shares in
addition to their common shares. These preference shares are equity shares
that receive the same dividend per share as the voting common shares plus an
additional percentage of the preference shares’ par value per share. In
return for this higher dividend, preference shares are non-voting in normal
circumstances, although they do have voting rights in certain situations. Many
of these preference shares trade at less than half the price of the
corresponding common shares despite receiving a slightly higher dividend
amount as the common shares and, therefore, provide preference shareholders
with relatively higher yields than the corresponding common shares.
The majority of Korean preference shares were issued in the mid-1990s, when
the Korean government pressured chaebols (family-owned Korean conglomerates)
to raise equity and reduce debt within their capital structures. By issuing
non-voting shares, the founders of the Korean companies were able to raise
equity capital without diluting their voting control. The additional payment
as a percentage of par value which preference shares paid out to investors,
albeit nominal today, was sufficiently large relative to the dividends in the
1990s to attract investors. Today, there are 121 Korean preference shares
outstanding with an aggregate market capitalisation of approximately £38
billion(22).
Although preference shares typically do not have voting rights, an economic or
financial model that values equity on the discounted value of future cash
flows would imply that the preference shares of these companies should be
trading at roughly the same price as the corresponding common shares. Further,
preference shares are not associated with over-priced speculative companies;
rather, many of the leading companies in the Korean economy have preference
shares outstanding today.
Continued corporate governance improvements, increased dividend payouts and
investor activism such as that experienced over the past several years could
continue to serve as catalysts for preference share discounts narrowing. The
Company invests in a portfolio of discounted Korean preference shares,
including Korean market heavyweights such as LG Chem Ltd., Hyundai Motor
Company, AmorePacific Corp., and LG Electronics Inc.
Top 10 Holdings
1. LG CHEM LTD., PFD.
15.0% OF WKOF NAVDISCOUNT TO COMMON SHARE: -54%
Korea’s largest chemical company by market capitalisation, LG Chem
manufactures and sells petrochemical products and advanced materials,
including plastics and EV batteries(23). Its EV battery business and
subsidiary, LG Energy Solution is the second-largest EV battery maker in the
world(24). In 2022, LG Chem generated over $34bn in revenue globally(25).
2. HYUNDAI MOTOR COMPANY, 2ND PFD.
12.2% OF WKOF NAV DISCOUNT TO COMMON SHARE: -51%
Hyundai Motor Company is one of Korea’s leading car manufacturers by market
share, producing and selling more than 3.9 million units globally in 2022.
Hyundai plans on increasing its presence in the electric vehicle market, while
targeting to sell over 4.3 million units in 2023(26,27).
3. AMOREPACIFIC CORP., PFD
7.5% OF WKOF NAV DISCOUNT TO COMMON SHARE: -65%
Amorepacific Corp develops beauty and cosmetic products while operating over
30 brands, including Etude and Laneige. Amorepacific’s portfolio of products
ranges from perfume to dental care, including a premium tea brand(28).
4. CJ CHEILJEDANG CORP, PFD.
7.1% OF WKOF NAVDISCOUNT TO COMMON SHARE: -56%
CJ CheilJedang is a leading food company in Korea, focused on processing food
ingredients into groceries such as refined sugar, flour, and processed meats.
The company also operates a number of food brands that specialise in home meal
replacements and snacks, including names like Bibigo and Petitzel. CJ
CheilJedang also operates in the bio industry, and produces plant-based
protein and amino acids(29).
5. HANWHA CORPORATION 3RD PFD.
7.0% OF WKOF NAVDISCOUNT TO COMMON SHARE: -46%
Hanwha Corporation specialises in producing and trading chemicals, aerospace &
defence products, and energy products. It also deals in the construction and
financial services industry. A Fortune Global 500 company, Hanwha
Corporation’s subsidiaries include Korea’s oldest life insurance company
and Hanwha Solutions, a leading domestic manufacturer of solar cell
panels(30).
6. LG ELECTRONICS INC., PFD.
6.7% OF WKOF NAVDISCOUNT TO COMMON SHARE: -51%
LG Electronics is a household brand in home appliances, with various product
lines including washing machines, televisions, refrigerators, and smart
phones. According to market research firm Omdia, the company ranked second
globally in terms of TV market share in 2022, capturing 16.7% of global TV
sales(31).
7. MIRAE ASSET DAEWOO CO., LTD., 2ND PFD.
5.7% OF WKOF NAVDISCOUNT TO COMMON SHARE: -41%
Mirae Asset Daewoo is a South Korean financial services firm offering
securities trading, equity underwriting, investment banking services, and
wealth/asset management. Mirae Asset conducts business globally, including the
United States, Canada, United Kingdom, and China(32).
8. LG HOUSEHOLD AND HEALTHCARE LTD., PFD.
4.6% OF WKOF NAVDISCOUNT TO COMMON SHARE: -56%
LG Household & Health Care operates within a number of industries, spanning
from cleaning products to beauty care. Beginning with an acquisition of
Coca-Cola’s Korea bottling operation in 2007, LG Household & Health Care
also established a beverage business segment, which now includes the
distribution of tea, coffee, and juices(33).
9. SK CHEMICALS CO., LTD., NEW PREF
3.8% OF WKOF NAVDISCOUNT TO COMMON SHARE: -49%
SK Chemicals focuses on the production of environmentally friendly materials
and life science products. Green chemicals include bio-based material used in
the production of polyurethane, as well as amorphous resin for containers and
home appliances(34). Its life science segment spans treatments for the common
cold to asthma treatments.
10. DOOSAN FUEL CELL CO., LTD., 1(st) PFD
3.7% OF WKOF NAV DISCOUNT TO COMMON SHARE: -68%
One of the largest fuel cell manufacturers by market capitalisation, Doosan
Fuel Cell produces and sell stationary fuel cell products globally. The
company is focused on sustainable electricity and heat generation. Its
products are targeted towards residential, commercial, and industrial use(35).
Chair’s Review
For the year ended 31 December 2022
We are pleased to provide the 2022 Annual Report on the Company. During the
period from 1 January 2022 to 31 December 2022 (the “Period”), the
Company’s net asset value fell by 21.34% including reinvested dividends(36).
The Company underperformed the reference MSCI Korea 25/50 Net Total Return
Index (the “Korea Index”), which fell by 18.22% in Pounds Sterling
(“GBP”). Since the admission of the Company to AIM in May 2013, the net
asset value has increased by 123.91% including reinvested dividends(36)
compared to the Korea Index returns of 50.93%(37), an annualised
outperformance of the index of 7.57%.
The global economy was heavily impacted by the Russian invasion of Ukraine and
the Korean stock market was not immune, even though none of the companies in
the portfolio has direct links to Russia. The “see through” discount of
the portfolio of preference shares remains very wide and has shown little
volatility since the previous Annual Report. This has not helped returns over
the year. The Company’s underperformance against the Korea Index in 2022 was
due to the widening of the discounts of the preference shares owned by the
Company and the poor performance of the common shares that the Company owns
the preference shares of, relative to those in the Index. The Korean equity
market performed poorly in 2022 due to challenging macro-economic conditions
such as a weakening currency, elevated inflation, and rising interest rates.
The performance of the Company will be explored in greater depth in the
Investment Manager’s Report.
The Directors declared an interim dividend of 6.3732 pence per Share, to
distribute the income received by the Company in respect of the year ended 31
December 2021. This dividend was paid to all Shareholders on 10 June 2022. The
growth in dividends per Share since the launch of the Company is in line with
the thesis that WAM has been promoting over the past several years; that
Korean companies pay out low dividends but this is improving which should
attract more global investors to the Korean stock market.
Based on the fact that the assets currently held by the Company consist mainly
of securities that are readily realisable, whilst the Directors acknowledge
that the liquidity of these assets needs to be managed, the Directors believe
that the Company has adequate financial resources to meet its liabilities as
they fall due for at least twelve months from the date of this report, and
that it is appropriate for the Financial Statements to be prepared on a going
concern basis.
The Board is authorised to repurchase up to 40% of the Company's outstanding
Ordinary Shares in issue as at 31 December 2022.(38) Since admission ten years
ago, and as at the date of this document, the Company has repurchased, at a
discount to NAV, 13,190,250 Ordinary Shares of the original 105,000,000
Ordinary Shares issued at admission (12.6%). The Board also has in place
standing instructions with the Company’s broker, Singer Capital Markets
Limited (the “Broker” or “Singer”), for the repurchase of the
Company’s Shares during closed periods when the Board is not permitted to
give individual instructions; such closed periods typically occur around the
preparation of the Annual and Half Yearly Financial Reports. The Board intends
to continue to repurchase Shares if the Company’s Shares are trading at a
significant discount to net asset value. We will also keep Shareholders
informed of any share repurchases through public announcements.
WKOF offers Shareholders the regular opportunity to elect to realise all, or a
part, of their shareholding in WKOF (the “Realisation Opportunity”) once
every two years, on the anniversary of WKOF’s admission date. A circular
with full details of the upcoming Realisation Opportunity was published on 13
March 2023. If any Shareholders elect for realisation, then on the Realisation
Date, WKOF’s current portfolio will be divided into two pools: a
Continuation Pool and a Realisation Pool. The Realisation Pool will be managed
in accordance with an orderly realisation with the aim of making progressive
returns of cash to holders of Realisation Shares. Given the performance of
WKOF, not just recently but over its entire life, the discount protection
measures WKOF has had in place since IPO, the potential to outperform going
forward as well as many other measures mentioned below, the Board expects
demand for this feature to be limited.
This is my last Annual Report as I have served on the Board since launch, and
it is time for a fresh perspective from new Directors. I would like to thank
Rob King for his efforts since IPO and welcome Krishna Shanmuganathan and
Wendy Dorey to the Board, as well as thank Gill Morris for her work over the
past 12 months. All of your new directors are well qualified to oversee the
next 10 successful years of the Company.
In last year’s Chair’s Review, I mentioned other initiatives that the
Board hoped to pursue in order to increase the attractiveness of WKOF’s
shares and expand the shareholder register to the benefit of all Shareholders.
At this time, none of these proposals has come to fruition but will hopefully
be kept under review by the new Board and implemented in the future.
In November 2022, Krishna and I visited the Investment Manager in Boston,
where we met both the immediate team responsible for managing the Company and
the wider team as well. We were struck by how the Investment Manager is still
bullish about the opportunity. Now that travel is fully open after the Covid
pause, the team are regularly travelling to Korea and seeking ways to actively
engage with companies in the portfolio on governance issues, to help narrow
the discount of the preference shares versus the common shares. That will be
the focus of activity over the coming year rather than the other initiatives
which have, for now at least, been put to one side.
The Board is very mindful of the expenses ratio and will continue to monitor
and review all costs.
The new Chair will be selected by the other Directors and with only a few
months left on the Board, I wish my colleague the best of luck in a role I
have immensely enjoyed over the past 10 years. I am confident that WAM will
continue to manage the portfolio to the best of their ability for the next ten
years, as they have done in the past.
The Board and the Investment Manager believe that the opportunity offered by
Korean preference shares is as attractive as it has been since launch. We
would hope that the next ten years provide the same opportunities for the
Company to outperform the index.
If any of the Shareholders wish to speak with the Board, then please contact
Singers and we will be happy to answer any questions you may have.
Norman Crighton
Chair
28 April 2023
Investment Manager’s Report
For the year ended 31 December 2022
In 2022, WKOF’s Net Asset Value (“NAV”) in pounds Sterling (“GBP”)
declined by 21.34%, including reinvested dividends,(39) compared to the
reference MSCI South Korea 25/50 Net Total Return Index (“the Korea
Index”),(40) which declined by 18.22% in GBP. The NAV performance from
inception through 31 December 2022, including reinvested dividends, was
123.91%, continuing to outperform relative to the Korea Index, which returned
50.93% over the same period.
WKOF Performance Attribution
At year-end, WKOF held a portfolio of 35 South Korean (“Korean”)
preference shares. As a reminder, the economic rights of Korean preference
shares are generally the same or slightly better than the corresponding common
shares, yet the preference shares often trade at substantial discounts to the
common shares. WKOF’s returns are driven by five primary factors:
the performance of the Korean equity market generally;
the performance of the common shares (which correspond to the preference
shares held by WKOF) relative to the performance of the Korean equity market;
the discounts of the preference shares it holds narrowing or widening
relative to their corresponding common shares;
excess dividend yields of the preference shares held by WKOF;
and fees, expenses and other factors.
In order to compare WKOF’s relative return to the Korea Index, we report the
attribution of these aforementioned factors to WKOF’s performance. The
following table provides this performance attribution for the last 12 months
and for the period since the inception of WKOF in May 2013 through 31 December
2022.
Return Component (41) Last 12 Months Since
Inception
The Korea Index (18.2)% 50.9%
WKOF Common Shares vs. MSCI Index (1.7)% 21.8%
Discount Narrowing (Widening) of Preferred Shares Owned (1.0)% 43.6%
Excess Dividend Yield of Preferred Shares Owned 2.4% 16.7%
Fees, Expenses and Others (2.8)% (9.1)%
NAV Performance (21.3)% 123.9%
The investment thesis when WKOF was formed was based on the likelihood that
the Company would outperform the Korea Index largely due to (i) decreases in
the large discounts of the preference shares held by WKOF relative to their
corresponding common shares and (ii) the related excess dividend yields caused
by these large discounts. This has, indeed, been generally the case as these
two factors have collectively been the main contributors to WKOF’s
outperformance relative to the Korea Index since inception. At present, we
remain confident in both of these theses. In September 2013, shortly after
inception, the preference shares held by WKOF traded at a 55.5% discount to
their corresponding common shares and the dividend yield was 1.7%. As of
December 2022, the discount and dividend yield were 51.7% and 3.53%,
respectively. Furthermore, over the life of the fund, the corresponding common
shares to WKOF’s preference shares have also outperformed the Korea Index
which we believe demonstrates that WKOF has not had a negative selection bias
with regards to the companies in which it invests. Finally, we are focused on
returns since inception because we believe that due to high levels of
idiosyncratic volatility, any data that is gathered over one-year periods is
unlikely to be more generally applicable.
Review of the South Korean Macro Environment
The challenging South Korean macroeconomic environment discussed in the
Company’s interim report issued on 12 September 2022 generally defined the
macroeconomic conditions of the year and was reflected in the performance and
trading volume of South Korean equity markets. The benchmark Korea Index
returned -18.2% in 2022, while the KOSPI 200 Index returned -26.2%.(42)
Concurrently, the KOSPI Index witnessed an over 40% decrease in trading volume
in 2022 compared to the prior year.(43)
Throughout the year, similar to other global economies, South Korea’s core
inflation remained elevated. According to Statistics Korea, South Korea’s
consumer price index increased over 5% on average throughout 2022 as compared
to 2021.(44) This is the highest rate since 1998 and well above the Bank of
Korea’s (“BoK”) inflation target of 2%.(45) Faced with mounting
inflationary pressure in the consumer economy, the BoK raised its policy
interest rate seven times over the year, taking the nation’s policy interest
rate from 1.0% as of November 2021 to 3.25% as of November 2022 (as of the
time of writing, the BoK has decided to raise this rate to 3.5%).(46) This
move by BoK’s Monetary Policy Committee represents one of the most
aggressive monetary tightening cycles in South Korean history in terms of both
pace and magnitude.
As an export-driven economy, factors and trends in the global economy also had
an effect on South Korea and its equity markets. The South Korean won
(“KRW”) had sizeable moves relative to major global currencies in 2022.
During the third quarter, the KRW depreciated 10% vs. the United States Dollar
(“USD”). Adjusting for changes in relative consumer prices, the real
effective exchange rate of the KRW in September 2022 fell by over 4% compared
to June 2022, making the KRW one of the most underperforming currencies in
Asia during the period.(47) While South Korea also experienced record high
annual export figures of over $680 billion USD, which were mainly driven by
sales of electric vehicles and components for rechargeable batteries, the net
effect on trade balances of these factors was offset by higher raw material
and energy costs.(48)
Valuations of Major Indices(49)
Index Name P/E Ratio P/B Ratio Dividend Yield
Nifty Index (India) 22.4 3.0 1.3%
S&P 500 (US) 19.1 3.9 1.8%
Nikkei 225 (Japan) 13.9 1.6 2.3%
FTSE 100 (UK) 11.6 1.6 3.7%
Shanghai Composite (China) 10.9 1.3 2.8%
Hang Seng Index (HK) 10.4 1.1 3.4%
TAIEX (Taiwan) 9.6 1.8 5.2%
KOSPI 200 (S. Korea) 7.2 0.8 2.1%
WKOF Portfolio Holdings (50) 4.0 0.4 3.7%
South Korean equities and the portfolio holdings of WKOF continue to offer
significant valuation discounts relative to other countries’ equity markets
as represented by the price-to-earnings ratios (“P/E ratios”) and
price-to-book ratios (“P/B ratios”) listed above.
As previously discussed, WKOF’s portfolio discount of the preference shares
it owns relative to the corresponding common shares at the end of 2022 was
51.7%. In addition, the KOSPI 200 has depressed valuation multiples as shown
above relative to other major indices. As a result, WKOF’s portfolio
holdings traded 71% lower than the average P/E and 85% lower than the average
P/B, as compared to the average ratios of the selected indices above.
At year end, the two largest holdings, by issuer, of WKOF are Hyundai Motor
Company (“HMC”) and LG Chem Ltd (“LGC”). These were also double-digit
percentage holdings throughout the fiscal year of 2022.
An investor owning discounted Korean preference shares receives higher annual
cash dividends compared to their corresponding common shares and also hopes to
benefit from potential capital appreciation that could arise if the discount
narrows. We began increasing WKOF’s holdings of HMC starting in 2021, when
different series of HMC’s preference shares traded at discounts of 55-60%
relative to the price of HMC’s common shares. At the beginning of 2022, HMC
was WKOF’s second largest holding by issuer. While it remains unclear when
or if the discount will narrow, the first preference shares of HMC were
trading at a larger discount than its three-year historical average discount
prior to 2020(51). Our view was and remains that, even in the absence of the
discount tightening, the historical dividend payouts of HMC’s preference
shares, if continued, are likely to generate a material yield and return for
the position based on the low trading price of the preference shares. While
HMC’s preference share price declined during 2022, WKOF continues to
maintain a sizable position in HMC’s preference shares as we believe the
current discount level still indicates potential for high returns.
In addition to higher dividend yields generated through owning discounted
preference shares, we believe an additional discount exists by owning
preference shares of certain holding companies. An example of such a holding
company is LG Chem, which we discussed in this year’s interim report issued
on 12 September 2022. Our belief is that LG Chem’s shareholders, regardless
of share class, are exposed to an additional discount that exists between the
price of the common shares and the value of its assets. This is because LG
Energy Solutions ("LGES"), a publicly traded stock, represent 79% of LG
Chem's assets. We estimate that LG Chem’s common shares trade at an
approximately 58% discount to the value of its assets.(52) Since the assets of
LG Chem are mainly publicly traded securities, one could view LG Chem as a
type of closed-end fund - albeit one with concentrated holdings. Typically, a
close-end fund trading at a 20% discount with a low expense ratio would be
considered cheap. LG Chem has low expenses, and generally has a controlling
interest in its subsidiaries.(53)
Accounting for both the discount of LG Chem’s preference share to its common
share and the discount of LG Chem’s common share to the value of its assets,
we estimate the final look-through discount of LG Chem’s preference shares
to be approximately 81%. While there is no guarantee of the discounts ever
disappearing or even narrowing, we are optimistic that the sheer magnitude of
this double look-through discount may eventually be discovered by diligent
investors seeking opportunities with highly asymmetric risk and reward.
Korean Corporate Governance
Corporate governance in Korea has historically been a major subject of
criticism among investors. However, current market trends favour improvements
in corporate governance in Korea and we have observed changes in several areas
during recent years; notably, the number of share buybacks has increased even
as payout ratios have risen. For example, LG Corp announced a share buyback
this year that would be sufficient to repurchase about 4% of the stock or 6%
of float once completed, on top of its dividend.(54) There have also been
similar share buybacks in recent years at companies like SK Inc. and Samsung
Electronics.(55) We view buybacks and higher dividend payouts as instances of
good corporate governance as these mechanisms allow companies to provide
additional returns of cash to shareholders.
Additionally, the sharp growth in activist demands made against Korean
companies at the end of 2021 continued in 2022. This category grew by 20 cases
in 2022 (the largest increase since 2016), representing a 74% increase on
2021’s total of 27.(56) Importantly, the growth in such demands also
corresponded with a concomitant increase in companies acquiescing to such
demands. One noteworthy instance was a local activist campaign against a major
local talent agency producing K-pop music bands, in which the local activist
fund successfully appointed its choice of an independent auditor to the
company’s board.(57) While shareholder activism is still far less prevalent
in Korea and other Asian countries than in Europe or the United States, we
view the growth in activist demands in South Korea as indicating that under
the right circumstances, Korean shareholders are growing more willing to
exercise influence in favour of corporate governance improvements.
Another growing source of criticism of the current corporate governance
environment in South Korea has been from the country’s top financial
regulators. From 15 September 2022 to 3 November 2022, several high-profile
public officials held at least three public policy seminars with academics,
institutional investors, and other industry participants to find solutions to
reduce the discount that Korean stocks trade at relative to global comparable
companies. The key individuals leading these seminars included the vice
chairperson of the Financial Services Commission, the governor of the
Financial Supervisory Services and chairperson of the Korea Exchange. The main
themes discussed during the series of seminars include dividend policy reform,
increasing foreign investor access to Korean equity markets and protection of
minority shareholders during mergers and acquisitions or insider trading.(58)
Our view remains that improvements in corporate governance should benefit
shareholders of preference shares in many ways, including increased dividend
yields and share buybacks.
Hedging
WKOF pursues its investment strategy with a portfolio that is generally long
only. However, as further described in WKOF's Annual Report and Audited
Financial Statements for the year ended 31 December 2017 and in subsequent
Annual Reports, the Board approved a hedging strategy intended to reduce
exposure to extreme events that would be catastrophic to its Shareholders’
investments in WKOF because of political tensions in Northeast Asia. WKOF has
limited its use of hedging instruments to purchases of credit default swaps
(“CDS”) and put options on the MSCI Korea 25/50 Index - securities that we
believe would generate high returns if Korea experienced geopolitical disaster
without introducing material new risks into the portfolio. WKOF is actively
managing these geopolitical risks and may adjust the portfolio’s hedges as
deemed appropriate. These catastrophe hedges are not expected to make money in
most states of the world. We expect that, as with any insurance policy,
WKOF’s hedges will lose money most of the time. The tables below provide
details about the hedges as of 31 December 2022. Note that outside of the
general market and portfolio hedges described herein, WKOF has generally not
hedged interest rates or currencies.
Credit Default Swaps on South Korean Sovereign Debt Notional Value (GBP) (59) Total Cost to Expiration (GBP) Annual Cost (GBP) Price Paid as % of Notional Value (per annum) Expiration Date Duration (Years)
3-year CDS 83m 593,608 183,616 0.23% 2025 3.0
Concluding Remarks
The pricing of Korean holding companies and preference shares is a direct
refutation of all the standard analyses of market efficiency. The mispricing
is large, and it is easily discovered. Historically, in countries such as
Brazil and Italy, discounts of preference shares have eventually tightened
significantly.(60) Even if Korean preference share discounts never disappear
or narrow, under existing market conditions, preference shares trading at a
discount are likely to remain more economically attractive than their
corresponding common shares due to lower purchase prices and increased yields.
The dividend spread would not be sufficiently attractive on its own to justify
an investment in such shares if there was a low probability that discounts
would ever narrow; however, when coupled with our optimism that discounts will
narrow eventually, enhanced yields appear to be attractive compensation for
potential delays in such outcome.
Thank you for your trust, and we look forward to providing you with updates in
the future.
Weiss Asset Management LP
28 April 2023
Independent Auditor’s Report
To the Members of Weiss Korea Opportunity Fund Ltd.
Our opinion is unmodified
We have audited the financial statements of Weiss Korea Opportunity Fund
Ltd. (the “Company”), which comprise the statement of financial position
as at 31 December 2022, the statements of comprehensive income, changes in
equity and cash flows for the year then ended, and notes, comprising
significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
· give a true and fair view of the financial position of the Company as
at 31 December 2022, and of the Company’s financial performance and cash
flows for the year then ended;
· are prepared in accordance with International Financial Reporting
Standards as adopted by the EU (“IFRS”); and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to listed entities. We believe
that the audit evidence we have obtained is a sufficient and appropriate basis
for our opinion.
Material uncertainty relating to going concern
The risk Our response
Going Concern Refer to the Report of the Directors. We draw attention to Note 2c to the financial statements, which indicates that in accordance with the Company’s Disclosure quality The financial statements explain how the directors have formed a judgement that it is appropriate to adopt the going concern basis of preparation of the Company. That judgement is based on an evaluation of the inherent risks to the Company’s business model and how those risks might affect the Company’s financial resources or ability to continue operations over a period of at least a year from the date of approval of the financial statements, in particular in relation to the Realisation Opportunity. The risk for our audit is whether such judgements amounted to a material uncertainty that may cast significant doubt on the ability of the Company to continue as a going concern. If so, that fact is required to be disclosed (as has been done) and along with a description of the circumstances, is a key financial statement disclosure. Our audit procedures included but were not limited to: Realisation Opportunity: We considered the risk that the outcome of the Realisation Opportunity could affect the Company for at least a year from the date of approval of the financial statements (the “going concern period”) by considering outcomes of previous realisation opportunities held by the Company, inspecting summaries of meetings held by the directors, inquiring with the investment manager as to their assessment of the likelihood of uptake of the Realisation Opportunity, and considering key financial metrics including the performance of the Company’s share price against relevant market indices. Assessing disclosures: We considered whether the going concern disclosure in note 2(c) to the financial statements gives full and accurate description of the directors’ assessment of going concern, including the identified risks and dependencies.
Articles of Association and its Admission Document to the Alternative Investment Market (“AIM”) of the London Stock Exchange, the Company shall offer all shareholders the
right to elect to realise some or all of the value of their Ordinary Shares, less applicable costs and expenses, on or prior to the fourth anniversary of the Company’s
AIM admission and every two years thereafter, the most recent being 14 May 2021 and a forthcoming opportunity being on 13 May 2023 (“the Realisation Opportunity”).
Subject to the aggregate net asset value of the continuing Ordinary Shares falling below the viable threshold disclosed in note 2c to the financial statements, the
directors may propose an ordinary resolution for the winding up of the Company. This condition constitutes a material uncertainty that may cast significant doubt about
the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Other key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. Going concern is a significant
key audit matter and is described in the 'Material uncertainty relating to
going concern' section of our report. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the other key audit matter
was as follows (unchanged from 2021):
The risk Our response
Valuation of financial assets at fair value through profit or loss (“Investments”) £120,764,446; (2021: £159,614,094) Refer to the Audit Committee Report, note 2f accounting policy and notes 12 and 21 disclosures Basis: As at 31 December 2022 the Company had invested 95% of its net assets in listed preferred shares and other financial instruments issued by companies incorporated and listed in South Korea, which in certain cases may trade at a discount to the corresponding common shares of the same companies. The Company’s listed investments are valued based on bid-market prices at the close of business of the relevant stock exchange on the reporting date obtained from third party pricing providers. Risk: The valuation of the Company’s investments, given they represent the majority of the Company’s net assets as at 31 December 2022, is a significant Our audit procedures included but were not limited to: Control Evaluation: We assessed the design, implementation and operating effectiveness of the relevant controls
area of our audit. over the valuation of investments. Valuation procedures including use of a KPMG Specialist: We have used our own valuation specialist to independently price all
investments to a third party data source and assessed the trading volumes behind such prices. Assessing disclosures: We also considered the Company’s investment
valuation policies and their application as described in note 2f to the Financial Statements for compliance with IFRS in addition to the adequacy of disclosures in notes
12 and 21.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £2,360,000,
determined with reference to a benchmark of net assets of £127,080,493 of
which it represents approximately 1.9% (2021: 2%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (2021: 75%) of materiality for the financial
statements as a whole, which equates to 1,770,000 (2021: £2,497,000). We
applied this percentage in our determination of performance materiality
because we did not identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding £118,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
Going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded that the Company's financial position
means that this is realistic. They have concluded that there are material
uncertainties that could cast significant doubt over its ability to continue
as a going concern for at least a year from the date of approval of the
financial statements (the “going concern period").
An explanation of how we evaluated management's assessment of going concern is
set out in the ‘Material uncertainty relating to going concern’ section of
our report.
Our conclusions based on this work:
· we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
· we have nothing material to add or draw attention to in relation to
the directors’ statement in Note 2c to the financial statements on the use
of the going concern basis of accounting, and their identification therein of
a material uncertainty over the Company’s ability to continue to use that
basis for the going concern period, and we found the going concern disclosure
in note 2c to be acceptable
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
· enquiring of management as to the Company’s policies and procedures
to prevent and detect fraud as well as enquiring whether management have
knowledge of any actual, suspected or alleged fraud;
· reading minutes of meetings of those charged with governance; and
· using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, we perform procedures to address the risk
of management override of controls, in particular the risk that management may
be in a position to make inappropriate accounting entries. On this audit we do
not believe there is a fraud risk related to revenue recognition because the
Company’s revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or
agreements with little or no requirement for estimation from management. We
did not identify any additional fraud risks.
We performed procedures including
· Identifying journal entries and other adjustments to test based on
risk criteria and comparing any identified entries to supporting
documentation; and
· incorporating an element of unpredictability in our audit procedures.
Identifying and responding to risks of material misstatement due to
non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company’s regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity’s procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company’s ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company’s activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report but does
not include the financial statements and our auditor's report thereon. Our
opinion on the financial statements does not cover the other information and
we do not express an audit opinion or any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors’ disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements
and our audit knowledge. we have nothing material to add or draw attention to
in relation to:
· the directors’ confirmation within the Viability Statement that
they have carried out a robust assessment of the emerging and principal risks
facing the Company, including those that would threaten its business model,
future performance, solvency or liquidity;
· the emerging and principal risks disclosures describing these risks
and explaining how they are being managed or mitigated;
· the directors’ explanation in the Viability Statement as to how
they have assessed the prospects of the Company, over what period they have
done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors’ corporate governance disclosures and
the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit
knowledge:
· the directors’ statement that they consider that the annual report
and financial statements taken as a whole is fair, balanced and
understandable, and provides the information necessary for shareholders to
assess the Company’s position and performance, business model and strategy;
· the section of the annual report describing the work of the Audit
Committee, including the significant issues that the audit committee
considered in relation to the financial statements, and how these issues were
addressed; and
· the section of the annual report that describes the review of the
effectiveness of the Company’s risk management and internal control systems.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· the Company has not kept proper accounting records; or
· the financial statements are not in agreement with the accounting
records; or
· we have not received all the information and explanations, which to
the best of our knowledge and belief are necessary for the purpose of our
audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement, the directors are responsible
for: the preparation of the financial statements including being satisfied
that they give a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error; assessing the
Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by persons other than
the Company's members as a body
This report is made solely to the Company’s members, as a body, in
accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit
work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for the opinions
we have formed.
KPMG Channel Islands Limited
Chartered Accountants
Guernsey
28 April 2023
Statement of Financial Position
As at 31 December 2022
As at As at
31 December 31 December
2022 2021
Notes £ £
Assets
Financial assets at fair value through profit or loss 12,21 120,764,446 159,614,094
Derivative financial assets 13,21 - 221,639
Other receivables 14 4,598,722 4,976,005
Due from broker - 696
Margin account 15 1,327,313 1,381,413
Cash and cash equivalents 16 2,890,620 3,091,245
Total assets 129,581,101 169,285,092
Liabilities
Derivative financial liabilities 13,21 1,145,453 984,227
Due to broker - 263,091
Other payables 17 1,355,155 1,496,629
Total liabilities 2,500,608 2,743,947
Net assets 127,080,493 166,541,145
Represented by:
Shareholders' equity and reserves
Share capital 18 33,986,846 33,986,846
Other reserves 93,093,647 132,554,299
Total shareholders' equity 127,080,493 166,541,145
Net Assets Value per Ordinary Share 6 1.8336 2.4029
The Notes form an integral part of these Financial Statements.
The Financial Statements were approved and authorised for issue by the Board
of Directors on 28 April 2023.
Norman Crighton
Gill Morris
Chair
Director
Statement of Comprehensive Income
For the year ended 31 December 2022
For the year ended For the year ended
31 December 2022 31 December 2021
Notes £ £
Income
Net changes in fair value of financial assets at fair value through profit or loss 7 (37,206,667) 2,349,820
Net changes in fair value of derivative financial instruments through profit or loss 8 1,253,397 403,489
Net foreign currency gains/(losses) 2n 632,948 (424,970)
Dividend income 9 5,088,748 5,586,806
Bank interest income 9 4,488 -
Total (loss)/income (30,227,086) 7,915,145
Expenses
Operating expenses 10 (3,696,545) (4,891,244)
Total operating expenses (3,696,545) (4,891,244)
(Loss)/profit for the year before dividend withholding tax (33,923,631) 3,023,901
Dividend withholding tax 2u (1,119,942) (1,232,396)
(Loss)/profit for the year after dividend withholding tax (35,043,573) 1,791,505
(Loss)/profit and total comprehensive (35,043,573) 1,791,505
(loss)/income for the year
Basic and diluted (loss)/earnings per Share 5 (0.5056) 0.0244
All items derive from continuing activities.
Following review of the AIC SORP and its impact on the Statement of
Comprehensive Income the Board has decided not to follow the recommended
income and capital split. This is due to the fact that the Company’s
dividend policy is not influenced by its expense policy. See Investment
Objective and Dividend Policy for details of the Company’s dividend policy.
The Notes form an integral part of these Financial Statements.
Statement of Changes in Equity
For the year ended 31 December 2022
Share Other
capital reserves Total
Notes £ £ £
Balance as at 1 January 2022 33,986,846 132,554,299 166,541,145
Total comprehensive loss for the year - (35,043,573) (35,043,573)
Transactions with Shareholders, recorded directly in equity
Distributions paid 3 - (4,417,079) (4,417,079)
Balance as at 31 December 2022 33,986,846 93,093,647 127,080,493
Share Other
capital reserves Total
For the year ended 31 December 2021 Notes £ £ £
Balance as at 1 January 2021 68,124,035 135,000,918 203,124,953
Total comprehensive income for the year - 1,791,505 1,791,505
Transactions with Shareholders, recorded directly in equity
Purchase of own Shares for cancellation 18 (1,719,433) - (1,719,433)
Purchase of Realisation Shares 18 (32,417,756) - (32,417,756)
Distributions paid 3 - (4,238,124) (4,238,124)
Balance as at 31 December 2021 33,986,846 132,554,299 166,541,145
The Notes form an integral part of these Financial Statements.
Statement of Cash Flows
For the year ended 31 December 2022
For the year ended 31 December 2022 For the year ended 31 December 2021
Notes £ £
Cash flows from operating activities
(Loss)/profit for the year (35,043,573) 1,791,505
Adjustments for:
Net change in fair value of financial assets held at fair value through profit or loss 7 37,206,667 (2,349,820)
Exchange (gains)/losses on cash and cash equivalents (523,108) 424,970
Net change in fair value of derivative financial instruments held at fair value through profit or loss 8 (1,253,397) (403,489)
Increase in receivables excluding dividends (3,314) (620)
Decrease in other payables excluding withholding tax 17 (57,744) (210,895)
Dividend income (3,968,807) (4,354,411)
Dividend received 4,265,673 4,330,946
Purchase of financial assets at fair value through profit or loss (10,431,005) (104,226,201)
Proceeds from the sale of financial assets at fair value through profit or loss 11,811,591 140,561,400
Net cash generated from operating activities 2,002,983 35,563,385
Cash flows from investing activities
Opening of derivative financial instruments 1,799,480 724,897
Closure of derivative financial instruments (163,217) (1,084,182)
Decrease in margin account 54,100 714,561
Net cash generated from investing activities 1,690,363 355,276
Cash flows from financing activities
Purchase of own shares for cancellation 18 - (1,719,433)
Repurchase of realisation Shares - (32,417,756)
Distributions paid 3 (4,417,079) (4,238,124)
Net cash used in financing activities (4,417,079) (38,375,313)
Net decrease in cash and cash equivalents (723,733) (2,456,652)
Exchange gains/(losses) on cash and cash equivalents 523,108 (424,970)
Cash and cash equivalents at the beginning of the year 3,091,245 5,972,867
Cash and cash equivalents at the end of the year 2,890,620 3,091,245
The Notes form an integral part of these Financial Statements.
Notes to the Financial Statements
For the year ended 31 December 2022
1. General information
Weiss Korea Opportunity Fund Ltd. (“WKOF” or the “Company”) was
incorporated with limited liability in Guernsey, as a closed-ended investment
company on 12 April 2013. The Company’s Shares were admitted to trading on
AIM of the LSE on 14 May 2013.
The Investment Manager of the Company is Weiss Asset Management LP.
At the AGM held on 27 July 2016, the Board approved the adoption of the new
Articles of Incorporation in accordance with Section 42(1) of the Companies
(Guernsey) Law, 2008 (the “Law”).
2. Significant accounting policies
a) Statement of compliance
The Financial Statements of the Company for the year ended 31 December 2022
have been prepared in accordance with IFRS adopted by the European Union and
the AIM Rules of the London Stock Exchange. They give a true and fair view and
are in compliance with the Law. Unless disclosed elsewhere within these
financial statements, the Board has adopted the AIC Statement of Recommended
Practice (“SORP”) where this is consistent with the requirements of IFRS,
in compliance with the Companies (Guernsey) Law, 2008 and appropriate for the
Company’s policies.
b) Basis of preparation
The Financial Statements are prepared in Pounds Sterling (£), which is the
Company’s functional and presentational currency. They are prepared on a
historical cost basis modified to include financial assets and liabilities at
fair value through profit or loss.
c) Going concern
In accordance with the Company’s Articles of Incorporation and its
Admission Document, the Company shall offer all Shareholders the right to
elect to realise some or all of the value of their Ordinary Shares (the
“Realisation Opportunity”), less applicable costs and expenses, on or
prior to the fourth anniversary of the Company’s admission to AIM and,
unless it has already been determined that the Company be wound-up, every two
years thereafter, the next such opportunity being 12 May 2023 (the
“Realisation Date”).
On 13 March 2023, the Company announced that pursuant to the Realisation
Opportunity, Shareholders who are on the register as at the record date may
elect, during the Election Period, to redesignate all or part (provided that
such part be rounded up to the nearest whole Ordinary Share) of their Ordinary
Shares as Realisation Shares. The Election Period commenced on 12 April 2023
and closes at 1pm, 5 May 2023.
Subject to the aggregate NAV of the continuing Ordinary Shares at the close of
business on the last business day before the Realisation Date being not less
than £50 million, the Ordinary Shares held by the Shareholders who have
elected for realisation will be redesignated as Realisation Shares and the
Portfolio will be split into two separate and distinct Pools, namely the
Continuation Pool (comprising the assets attributable to the continuing
Ordinary Shares) and the Realisation Pool (comprising the assets attributable
to the Realisation Shares). If one or more Realisation Elections are duly made
and the NAV of the continuing Ordinary Shares at the close of business on the
last business day before the Reorganisation Date is less than £50 million,
the Directors may propose an ordinary resolution for the winding up of the
Company and may pursue a liquidation of the Company instead of splitting the
Portfolio into the Continuation Pool and the Realisation Pool.
Currently, the Board does not know the number of Shareholders (or related
Shares) who will take up the Realisation Opportunity. Based on the uncertainty
of the uptake of the offer, there is a material uncertainty over the going
concern of the entity. As the assets of the Company consist mainly of
securities that are readily realisable, whilst the Directors acknowledge that
the liquidity of these assets needs to be managed, the Directors believe that
the Company has adequate financial resources to meet its liabilities as they
fall due in the foreseeable future and for at least twelve months from the
date of this Report, and that it is appropriate for the Financial Statements
to be prepared on a going concern basis, given that the Board believes the
Company will continue in existence post the Realisation Opportunity.
d) Standards, amendments and interpretations not yet effective
A number of new standards, amendments to standards and interpretations are
effective for annual periods beginning on/after 1 January 2023, and have not
been early adopted in preparing these financial statements. None of these is
expected to have a material effect on the financial statements of the Company.
· IFRS 17 Insurance Contracts (Effective 1 January 2023)
· Definition of Accounting Estimates (Amendments to IAS 8) (Effective
1 January 2023)
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2)
(Effective 1 January 2023)
· Amendments to IAS 12 Income Taxes – Deferred Tax related to
Assets and Liabilities arising from a Single Transaction (effective from 1
January 2023)
· Amendments to IAS 1 Presentation of Financial Statements –
Classification of liabilities (effective from 1 January 2024)
e) Standards, amendments and interpretations effective during the year
A number of new standards, amendments to standards and interpretations are
effective for annual periods beginning on 1 January 2022, and have been
adopted in preparing these financial statements where relevant.
· Amendments to IFRS 3 Business Combinations – Reference to the
Conceptual Framework
· Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets – Onerous Contracts - Cost of Fulfilling a Contract
· Amendments to IFRS 1 First-time Adoption of International Financial
Reporting Standards – Subsidiary as a First-Time Adopter
· Amendments to IFRS 9 Financial Instruments – Fees in the '10 per
cent' test for derecognition of financial liabilities
The adoption of these standards has not had a material impact on the financial
statements of the Company.
f) Financial instruments
i) Classification
Financial assets are classified into the following categories: financial
assets at fair value through profit or loss and amortised cost.
The classification depends on the business model in which a financial asset is
managed and its contractual cash flows.
Financial liabilities are classified as either financial liabilities at fair
value through profit or loss or other financial liabilities at amortised cost.
Financial assets at fair value through profit or loss (“investments”)
Financial assets and derivatives are recognised in the Company’s Statement
of Financial Position when the Company becomes a party to the contractual
provisions of the instrument.
Purchases and sales of investments are recognised on the trade date (the date
on which the Company commits to purchase or sell the investment). Investments
purchased are initially recorded at fair value, being the consideration given
and excluding transaction or other dealing costs associated with the
investment.
Subsequent to initial recognition, investments are measured at fair value.
Gains and losses arising from changes in the fair value of investments and
gains and losses on investments that are sold are recognised through profit
or loss in the Statement of Comprehensive Income within net changes in fair
value of financial assets at fair value through profit or loss.
ii) Recognition and measurement
Financial assets at fair value through profit or loss (“derivatives: credit
default swaps and options”)
Subsequent to initial recognition at fair value, credit default swaps and
options are measured at fair value through profit and loss.
The fair values of the credit default swaps and options are based on traded
prices. The valuation of the credit default swaps and options fair values
means fluctuations will be reflected in the net changes in fair value of
derivative instruments through profit or loss.
Derivatives are presented in the Statement of Financial Position as financial
assets when their fair value is positive and as financial liabilities when
their fair value is negative.
Other financial instruments
For other financial instruments, including other receivables and other
payables, the carrying amounts as shown in the Statement of Financial Position
approximate the fair values due to the short term nature of these financial
instruments.
iii) Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. Investments traded in active markets are valued at the
latest available bid prices ruling at midnight, Greenwich Mean Time
(“GMT”), on the reporting date. The Directors are of the opinion that the
bid-market prices are the best estimate of fair value. Gains and losses
arising from changes in the fair value of financial assets and financial
liabilities at fair value through profit and loss are shown as net changes in
fair value of financial assets through profit or loss in Note 12 and are
recognised in the Statement of Comprehensive Income in the period in which
they arise. Gains and losses arising from changes in the fair value of
derivative financial instruments are shown as net changes in fair value of
derivative financial instruments through profit or loss in Note 13 and are
recognised in the Statement of Comprehensive Income in the period in which
they arise.
iv) Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to receive cash flows
from the asset have expired; (b) the Company retains the right to receive cash
flows from the asset, but has assumed an obligation to pay them in full
without material delay to a third party under a “pass through
arrangement”; or (c) the Company has transferred substantially all the risks
and rewards of the asset, or has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred
control of the asset.
On derecognition of a financial asset, the difference between the carrying
amount of the asset using the average cost method and the consideration
received (including any new asset obtained, less any new liability assumed) is
recognised in profit or loss.
A financial liability is derecognised when the obligation under the liability
is discharged, cancelled, or expired.
g) Net changes in fair value of financial assets at fair value through
profit or loss
Net changes in fair value of financial assets at fair value through profit or
loss includes all realised and unrealised fair value changes on financial
instruments, but excludes dividend income.
h) Net changes in fair value of derivative financial instruments through
profit or loss
Net changes in fair value of derivative financial instruments includes all
realised and unrealised fair value changes on derivative contracts.
i) Other income
Dividend income from equity investments is recognised through profit or loss
in the Statement of Comprehensive Income when the relevant investment is
quoted ex-dividend. Interest income, including income arising from cash and
cash equivalents is recognised using the effective interest method.
j) Expenses
All expenses are accounted for on an accrual basis and are recognised in
profit or loss. Expenses are charged to the capital reserve where a connection
with the maintenance or enhancement of the value of the investments can be
demonstrated.
k) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents include bank
overdrafts. Cash equivalents are short term, highly liquid investments that
are readily convertible to known amounts of cash and which are subject to
insignificant changes in value. Cash, deposits with banks, and bank overdrafts
are stated at their principal amount.
l) Margin accounts
Margin accounts represent deposits with the sub-custodian, transferred as
collateral against open derivative contracts. The Company’s investment into
traded derivative instruments requires the need to post and maintain margin
accounts with set limits with the aim of minimising counterparty risk
associated with these derivative instruments. Margin account balances are
stated at their principal amount.
m) Share capital
Ordinary Shares are classified as equity. Incremental costs directly
attributable to the issue of these Shares are shown in equity as a deduction,
net of tax, from the proceeds and disclosed in the Statement of Changes in
Equity.
n) Foreign currency translations
Functional and presentation currency
The Financial Statements of the Company are presented in the currency of the
primary economic environment in which the Company operates (its “functional
currency”). The Directors have considered the currency in which the original
capital was raised, distributions will be made, and ultimately the currency in
which capital would be returned in a liquidation.
On the reporting date, the Directors believe that pounds sterling best
represents the functional currency of the Company.
For the purpose of the Financial Statements, the results and financial
position of the Company are expressed in pounds sterling, which is the
presentational currency of the Company. Monetary assets and liabilities,
denominated in foreign currencies, are translated into pounds sterling at the
exchange rate at the reporting date. Non-monetary assets denominated in
foreign currencies that are measured at fair value are translated in pounds
sterling at the exchange rate at the date on which the fair value was
determined. Realised and unrealised gains or losses on currency translation
are recognised in the Statement of Comprehensive Income.
o) Treasury shares
Where the Company purchases its own share capital, the consideration paid,
which includes any directly attributable costs, is deducted through share
capital. The difference between the total consideration and the total nominal
value of all Shares purchased is recognised through other reserves.
If such Shares are subsequently sold or reissued, any consideration received,
net of any directly attributable incremental transaction costs and the related
income tax effects, is recognised as an increase in equity and the resulting
surplus or deficit on the transaction is transferred to or from other
reserves.
Where the Company cancels treasury shares, no further adjustment is required
to the share capital account at the time of cancellation. Shares held in
treasury are excluded from calculations when determining NAV per Share and
earnings per Share.
p) Operating segments
The Board has considered the requirements of IFRS 8 ‘Operating Segments’
and is of the view that the Company is engaged in a single segment of
business, being an investment strategy tied to listed preference shares issued
by companies incorporated in South Korea. The Board, as a whole, has been
determined as constituting the chief operating decision maker of the Company.
The key measure of performance used by the Board to assess the Company’s
performance and to allocate resources is the total return on the Company’s
NAV, as calculated under IFRS, and therefore no reconciliation is required
between the measure of profit or loss used by the Board and that contained in
these Audited Financial Statements.
The Board of Directors is charged with setting the Company’s investment
strategy in accordance with the investment policy. They have delegated the day
to day implementation of this strategy to the Company’s Investment Manager
but retain responsibility to ensure that adequate resources of the Company are
directed in accordance with their decisions. The investment decisions of the
Investment Manager are reviewed on a regular basis to ensure compliance with
the policies and legal responsibilities of the Board. The Investment Manager
has been given full authority to act on behalf of the Company, including the
authority to purchase and sell securities and other investments on behalf of
the Company and to carry out other actions as appropriate to give effect
thereto.
Whilst the Investment Manager may make the investment decisions on a day to
day basis regarding the allocation of funds to different investments, any
changes to the investment strategy or major allocation decisions have to be
approved by the Board, even though they may be proposed by the Investment
Manager.
The Board therefore retains full responsibility as to the major decisions made
on an ongoing basis.
q) Other receivables
Other receivables are amounts due in the ordinary course of business. Other
receivables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method, less provision for
impairment.
r) Other payables
Other payables are obligations to pay for services that have been acquired in
the ordinary course of business. Other payables are recognised initially at
fair value and subsequently measured at amortised cost using the effective
interest method.
s) Due from and due to brokers
Amounts due from and due to brokers represent receivables for securities sold
and payables for securities purchased that have been contracted for but not
yet settled or delivered on the Statement of Financial Position date,
respectively.
t) Dividend distribution
Dividend distribution to the Company’s Shareholders is recognised as a
liability in the Company’s Financial Statements and disclosed in the
Statement of Changes in Equity in the period in which the dividends are
proposed and approved by the Board. The Company intends to return to
Shareholders all dividends received, net of withholding tax, on an annual
basis.
u) Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability is an annual fee of £1,200 (2021: £1,200).
The amounts disclosed as taxation in the Statement of Comprehensive Income
relate solely to withholding tax levied in South Korea on distributions from
South Korean companies at an offshore rate of 22%.
v) Other reserves
Total comprehensive income for the year is transferred to other reserves.
Other reserves are made up of net income and operating gains/losses. As per
the distribution policy, dividends received are the only item distributable
from other reserves.
3. Dividends to Shareholders
Dividends, if any, will be paid annually each year. An annual dividend of
6.3732 pence per Share (£4,417,079) was approved on 12 May 2022 and paid on
10 June 2022 in respect of the year ended 31 December 2021. An annual
dividend of 5.2311 pence per Share (£4,238,124) was approved on 4 May 2021
and paid on 4 June 2021 in respect of the year ended 31 December 2020.
4. Significant accounting judgements, estimates and assumptions
The preparation of the Financial Statements in conformity with IFRS requires
management to make judgements, estimates, and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expense, and the accompanying disclosures. Uncertainty about these
assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected in future
periods.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of revision and future periods if the revision affects both current and future
periods.
Judgements
In the process of applying the Company’s accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the Annual Financial Statements:
Functional currency
As disclosed in Note 2n, the Company’s functional currency is the pound
sterling. Pound sterling is the currency in which the original capital was
raised, distributions will be made, and ultimately the currency in which
capital would be returned in a liquidation.
5. Basic and diluted loss/earnings per Share
The total basic and diluted loss per Ordinary Share of £0.5056 (31 December
2021: earnings per Share of £0.0244) for the Company has been calculated
based on the total loss after tax for the year of £35,043,573 (31 December
2021: £1,791,505 profit) and the weighted average number of Ordinary Shares
in issue during the year of 69,307,078 (for the year ended 31 December 2021:
73,584,938).
6. Net Asset Value per Ordinary Share
The NAV of each Share of £1.8336 (as at 31 December 2021: £2.4029) is
determined by dividing the net assets of the Company attributed to the
Ordinary Shares of £127,080,493 (as at 31 December 2021: £166,541,145) by
the number of Ordinary Shares in issue at 31 December 2022 of 69,307,078 (as
at 31 December 2021: 69,307,078 Ordinary Shares in issue).
7. Net changes in fair value on financial assets at fair value through
profit or loss
For the year ended For the year ended
31 December 2022 31 December 2021
£ £
Realised gain on investments 6,061,684 51,837,460
Realised loss on investments (7,858,918) (4,809,298)
Unrealised gains on investment 1,023,263 4,780,383
Unrealised losses on investment (36,432,696) (49,458,725)
Net changes in fair value on financial assets at fair value through profit or loss (37,206,667) 2,349,820
8. Net changes in fair value on derivative financial instruments at fair
value through profit or loss
For the year ended For the year ended
31 December 2022 31 December 2021
£ £
Realised gain on options 245,221 -
Realised loss on options (15,545) (262,783)
Realised gain on credit default swaps 1,119,517 923,664
Realised loss on credit default swaps (823,670) -
Unrealised gain on options 136,822 63,008
Unrealised gain on credit default swaps 591,052 -
Unrealised loss on credit default swaps - (320,400)
Net changes in fair value on financial derivatives at fair value through profit or loss
1,253,397 403,489
9. Other income
For the year ended For the year ended
31 December 2022 31 December 2021
£ £
Dividend income 5,088,748 5,586,806
Bank interest income 4,488 -
5,093,236 5,586,806
10. Operating expenses
For the year ended For the year ended
31 December 2022 31 December 2021
£ £
Investment management fee (Note 19c) 2,058,546 2,933,140
Professional fees 246,967 179,021
Transaction costs¹ 83,894 666,440
Derivative expense¹ 802,039 735,180
Custodian fees 63,314 88,039
Audit fees 45,224 39,000
Administration and Secretarial fees 113,882 119,623
Directors' fees (Note 19a) 116,774 86,178
Bank interest - 2,236
Sundry expenses 165,905 42,387
Total operating expenses 3,696,545 4,891,244
1. Excluded from the Total Expense Ratio (TER) calculation.
11. Operating segments
Information on realised gains and losses derived from sales of investments is
disclosed in Note 7 of the Financial Statements. The Company is domiciled in
Guernsey. Substantially, all of the Company’s income is from its investment
in listed preference shares issued by companies incorporated in South Korea.
The Company is likely to have a high degree of portfolio concentration as
South Korean preference shares are concentrated with a small number of
issuers.
12. Financial assets at fair value through profit or loss
As at As at
31 December 31 December
2022 2021
£ £
Cost of investments at beginning of the year 149,112,223 137,878,681
Purchases of investments in the year 10,167,914 101,777,858
Disposal of investments in the year (11,810,895) (137,572,478)
Net realised (losses)/gains on investments in the year (1,797,234) 47,028,162
Cost of investments held at end of the year 145,672,008 149,112,223
Unrealised (loss)/gain on investments (24,907,562) 10,501,871
Financial assets at fair value through profit or loss 120,764,446 159,614,094
Financial assets are valued at the bid-market prices ruling as at the close of
business at the Statement of Financial Position date, net of any accrued
interest which is included in the Statement of Financial Position as an income
related item. The Directors are of the opinion that the bid-market prices are
the best estimate of fair value in accordance with the requirements of IFRS 13
‘Fair Value Measurement’. Movements in fair value are included in the
Statement of Comprehensive Income.
13. Derivative financial instruments
As at As at
31 December 31 December
2022 2021
£ £
Cost of derivatives at beginning of the year (724,897) (1,745,063)
Opening of derivatives in the year (1,799,480) (724,897)
Closure of derivatives in the year 163,217 1,084,182
Realised gain on closure of derivatives in the year 525,523 660,881
Net cost of derivatives held at end of the year (1,835,637) (724,897)
Unrealised gain/(loss) on derivative financial instruments at fair value through profit or loss 690,184 (37,691)
Net fair value on derivative financial instruments at fair value through profit or loss (1,145,453) (762,588)
The following are the composition of the Company’s derivative financial
instruments at year end:
As at As at
31 December 31 December
2022 2021
Assets Liabilities Assets Liabilities
Derivatives held for trading: £ £ £ £
Options - - 221,639 -
Credit default swaps - (1,145,453) - (984,227)
Total - (1,145,453) 221,639 (984,227)
As at 31 December 2022
Credit Default Swaps on South Korean Sovereign Debt Notional Value (GBP) Total Cost to Expiration (GBP) Annual Cost (GBP) Price Paid as % of Notional Value (per annum) Expiration Date Total Duration (Years)
3 year CDS £82m 601,974 182,384 0.23% 2025 3.0
As at 31 December 2021
Credit Default Swaps on South Korean Sovereign Debt Notional Value (GBP) Total Cost to Expiration (GBP) Annual Cost (GBP) Price Paid as % of Notional Value (per annum) Expiration Date Total Duration (Years)
5 year CDS $20m $457,151 $91,430 45bps 2023 5.0
3 year CDS Total Cost $80m $431,216 $888,367 $143,739 $235,169 18bps 2023 3.0
Number of Put Option Contracts Held on EWY Strike Price (USD) Total Cost to Expiration (USD) Purchase Date Expiration Date
2,000 $78 $504,069 18 June 2021 21 January 2022
The Company purchased certain credit default swaps on the sovereign debt of
South Korea as general market and portfolio hedges, but generally did not
hedge its exposure to interest rates or foreign currencies during the year
ended 31 December 2022 (2021: Nil).
As the Company’s investments are heavily concentrated in South Korean
securities, the Company has entered into certain portfolio hedge positions
which are intended to provide some level of protection against potential
adverse geopolitical and macroeconomic conditions in South Korea. The
Company’s purchases of credit default swaps and put options as described in
this Note 13 reflect its belief that such securities will provide the
foregoing protection without introducing material new risks into the
Company’s portfolio.
14. Other receivables
As at As at
31 December 31 December
2022 2021
£ £
Dividends receivable 4,592,997 4,973,594
Prepaid expenses 5,725 2,411
Total other receivables 4,598,722 4,976,005
The Directors consider that the carrying amount of receivables approximate
their fair value.
15. Margin account
As at As at
31 December 31 December
2022 2021
£ £
Margin account 1,327,313 1,381,413
The margin account for 2022 represents a margin deposit of collateral held by
Goldman Sachs & Co. LLC in relation to the credit default swaps. The margin
account for 2021 represents a margin deposit of collateral held by Credit
Suisse International and Goldman Sachs & Co. LLC. The carrying value of the
margin account approximates the fair values due to the short term nature.
16. Cash and cash equivalents
As at As at
31 December 31 December
2022 2021
£ £
Cash at bank 2,890,620 3,091,245
Cash at bank earns interest at floating rates based on daily bank deposit
rates. The carrying value of cash at bank approximates the fair values due to
the short term nature.
17. Other payables
As at As at
31 December 31 December
2022 2021
£ £
Investment management fees payable (Note 19c) 155,320 214,941
Administration fee payable 27,243 36,518
Custody fee payable 15,178 11,038
Co-sec and Listing fee payable 8,228 6,162
Audit fees payable 43,500 38,641
Withholding tax payable 1,010,459 1,094,190
Other payables 95,227 95,138
Total other payables 1,355,155 1,496,629
The Directors consider that the carrying amount of payables approximate their
fair value
18. Share capital
The share capital of the Company consists of an unlimited number of Ordinary
Shares of no par value.
As at As at
31 December 31 December
2022 2021
Authorised
Unlimited Ordinary Shares at no par value - -
Issued at no par value
69,307,078 (2021: 69,307,078) Ordinary Shares at no par value - -
Reconciliation of number of Shares
As at As at
31 December 31 December
2022 2021
No. of shares No. of shares
Ordinary Shares at the beginning of the year 69,307,078 81,617,828
Purchase of own Shares for cancellation - (600,000)
Purchase of Realisation Shares - (11,710,750)
Total Ordinary Shares in issue at the end of the year 69,307,078 69,307,078
Treasury shares
2022 2021
Shares Shares
Treasury Shares at the beginning of the year 11,437,662 -
Redesignation of Realisation Shares 273,085 11,437,662
Total Shares at the end of the year 11,710,747 11,437,662
Share capital account
As at As at
31 December 31 December
2022 2021
£ £
Share capital at the beginning of the year 33,986,846 68,124,035
Purchase of own Shares for cancellation - (1,719,433)
Purchase of Realisation Shares - (32,417,756)
Total Share capital at the end of the year 33,986,846 33,986,846
Ordinary Shares
The Company has a single class of Ordinary Shares, which were issued by means
of an initial public offering on 14 May 2013, at 100 pence per Share.
The rights attached to the Ordinary Shares are as follows:
a) The holders of Ordinary Shares shall confer the right to all dividends in
accordance with the Articles of Incorporation of the Company.
b) The capital and surplus assets of the Company remaining after payment of
all creditors shall, on winding-up or on a return (other than by way of
purchase or redemption of own Ordinary Shares) be divided amongst the
Shareholders on the basis of the capital attributable to the Ordinary Shares
at the date of winding up or other return of capital.
c) Shareholders present in person or by proxy or (being a corporation)
present by a duly authorised representative at a general meeting have on a
show of hands, one vote and, on a poll, one vote for every Share.
d) On 13 March 2023, being 61 days before the Subsequent Realisation Date,
the Company published a circular pursuant to the Realisation Opportunity,
entitling the Shareholders to serve a written notice during the election year
(a “Realisation Election”) requesting that all or a part of their Ordinary
Shares be re-designated to Realisation Shares, subject to the aggregate NAV of
the continuing Ordinary Shares on the last business day before the
Reorganisation Date being not less than £50 million. As Shareholders elect to
participate in the Realisation Opportunity, the Company’s portfolio will be
divided into two pools: the Continuation Pool; and the Realisation Pool.
Share buyback and cancellation
During the year ended 31 December 2022, the Company purchased Nil shares (31
December 2021: 600,000) of its own Shares at a consideration of £Nil (31
December 2021: £1,719,433) under its general buyback authority.
The Company has 69,307,078 Ordinary Shares in issue as at 31 December 2022 (as
at 31 December 2021: 69,307,078). The Company has 11,710,747 Treasury Shares
in issue as at 31 December 2022 (as at 31 December 2021: 11,437,662).
At the AGM held on 21 July 2022, Shareholders approved the authority of the
Company to buy back up to 40% of the issued Ordinary Shares to facilitate the
Company’s discount management. Any Ordinary Shares bought back may be
cancelled or held in treasury.
19. Related-party transactions and material agreements
Related-party transactions
a) Directors’ remuneration and expenses
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine provided that the aggregate amount of such fees
does not exceed £150,000 per annum. The annual Directors’ fees comprise
£35,000 payable to Norman Crighton as the Chair, £32,500 to Gill Morris as
Chair of the Audit Committee, £30,000 to Krishna Shanmuganathan and £30,000
to Wendy Dorey. The Board increased their fees by £1,500 per Director, per
annum effective 1 January 2023. For additional information refer to the
Directors’ Remuneration Report.
During the year ended 31 December 2022, Directors’ fees of £116,774 (year
ended 31 December 2021: £86,178) were charged to the Company and £Nil
remained payable at the end of the year (as at 31 December 2021: £Nil).
b) Shares held by related parties
The Directors who held office at 31 December 2022 and up to the date of this
Report held the following number of
Ordinary Shares beneficially:
As at 31 December 2022 As at 31 December 2021
Ordinary % of issued Ordinary % of issued
Shares share capital Shares share capital
Norman Crighton 20,000 0.03% 20,000 0.03%
Robert King N/A N/A 15,000 0.02%
Gillian Morris 3,934 0.01% 3,934 0.01%
Krishna Shanmuganathan - - N/A N/A
Wendy Dorey 2,552 0.00% N/A N/A
Krishna Shanmuganathan was appointed to the Board on 1 June 2022. Wendy Dorey
was appointed to the Board on 9 September 2022. Robert King resigned from the
Board on 30 September 2022. There have been no other changes in the interests
of the above Directors during the year.
The Investment Manager is principally owned by Dr Andrew Weiss and certain
members of the Investment Manager’s senior management team. As at 31
December 2022, Dr Andrew Weiss, his immediate family members and the
Donor-Advised Fund held an interest in 7,010,888 Ordinary Shares (as at 31
December 2021:7,010,888) representing 10.12% (as at 31 December 2021: 10.12%)
of the Ordinary issued share capital of the Company.
As at 31 December 2022, employees and partners of the Investment Manager other
than Dr Andrew Weiss, their respective immediate family members or entities
controlled by them or their immediate family members held an interest in
3,594,333 Ordinary Shares (as at 31 December 2021: 2,844,333) representing
5.19% (as at 31 December 2021: 4.10 %) of the Ordinary issued share capital of
the Company.
Material agreements
c) Investment management fee
The Company’s Investment Manager is Weiss Asset Management LP. In
consideration for its services provided by the Investment Manager under the
Investment Management Agreement (IMA) dated 8 May 2013, the Investment Manager
is entitled to an annual management fee of 1.5 % of the Company’s NAV
accrued daily and payable within 14 days after each month end. The Investment
Manager is also entitled to reimbursement of certain expenses incurred by it
in connection with its duties.
The IMA will continue in force until terminated by the Investment Manager or
the Company, giving to the other party thereto not less than 12 months’
notice in writing. For the year ended 31 December 2022, investment management
fees and charges of £2,058,546 (for the year ended 31 December 2021:
£2,933,140) were charged to the Company and £155,320 (as at 31 December
2021: £214,941) remained payable at the year end.
20. Financial risk management
The Company’s objective in managing risk is the creation and protection of
Shareholder value. Risk is inherent in the Company’s activities, but it is
managed through an ongoing process of identification, measurement, and
monitoring.
The main risks arising from the Company’s financial instruments are
operational risk, market risk, foreign currency risk, interest rate risk,
credit risk, and liquidity risk. The techniques and instruments utilised for
the purposes of efficient portfolio management are those which are reasonably
believed by the Board to be economically appropriate to the efficient
management of the Company.
Operational risks
The Company is exposed to the risk arising from any failures of systems and
controls in the operations of the Investment Manager, Administrator, and the
Custodian. The Board and its Committees regularly review reports from the
Investment Manager and the Administrator on their internal controls. The
Administrator will report to the Investment Manager any valuation issues which
will be brought to the Board for final approval as required.
Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market prices. The
Company’s activities expose it primarily to the market risks of changes in
market prices, interest rates, and foreign currency exchange rates. The
Company’s investments are heavily concentrated in South Korean securities.
As the Company’s investments are heavily concentrated in South Korean
securities, the Company has entered into certain portfolio hedge positions
which are intended to provide some level of protection against potential
adverse geopolitical and macroeconomic conditions in South Korea.
Market price risk
The Company’s NAV is sensitive to movements in market prices. As at 31
December 2022, if market prices had been 10% higher or 10% lower with all
other variables held constant, then the increase/decrease in NAV would have
been £12,076,445 (as at 31 December 2021: 5% £7,980,705). Actual trading
results may differ from the above sensitivity analysis and those differences
may be material.
Were there to be a major change in the political or economic environment in
South Korea, the movement in market prices may be significantly and materially
higher than the above. Refer to Investment Manager’s Report for a
discussion of potential political and economic changes.
Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument
will fluctuate due to changes in foreign exchange rates.
The Company does not hedge its exposure to foreign currency (predominantly
Korean won (KRW)) and NAV per Share will fluctuate with movements in foreign
exchange rates.
As at 31 December 2022, the Company held the following assets and liabilities
in foreign currencies:
As at As at
31 December 31 December
2022 2021
Amounts in Sterling EUR KRW USD KRW USD
Assets
Monetary assets 438 126,495,129 2,903,730 166,333,561 2,563,319
Total 438 126,495,129 2,903,730 166,333,561 2,563,319
Liabilities
Monetary liabilities - (1,010,459) (1,145,453) (1,357,281) (984,227)
Total - (1,010,459) (1,145,453) (1,357,281) (984,227)
Amounts in the above table are based on the carrying value of monetary assets
and liabilities.
The table below summarises the sensitivity of the Company’s monetary and
non-monetary assets and liabilities to changes in foreign exchange movements
at 31 December 2022.
Reasonable As at Reasonable As at
possible 31 December possible 31 December
shift in rate 2022 shift in rate 2021
2022 £ 2021 £
Currency
KRW
Monetary assets +/- 10% 12,649,513 +/- 5% 8,316,678
Monetary liabilities +/- 10% (101,046) +/- 5% (67,864)
US Dollars
Monetary assets +/- 10% (114,545) +/- 5% (49,211)
'Monetary liabilities +/- 10% 290,373 +/- 5% 128,166
Interest rate risk
The Company holds limited cash and margin balances in interest-bearing
accounts of £4,217,933 as at 31 December 2022 (as at 31 December 2021:
£4,472,658) and does not invest in interest-bearing securities and
instruments. Accordingly, interest rate risk is considered very low.
The tables below summarise the Company’s exposure to interest rate risk as
of 31 December 2022:
Total
As at
Floating Fixed Non-Interest 31 December
rate rate bearing 2022
£ £ £ £
Financial Assets
Investments designated at fair value
through profit or loss - - 120,764,446 120,764,446
Other receivables - - 4,598,722 4,598,722
Margin account 1,327,313 - - 1,327,313
Cash and cash equivalents 2,890,620 - - 2,890,620
Total 4,217,933 - 125,363,168 129,581,101
Total
As at
Floating Fixed Non-Interest 31 December
rate rate bearing 2022
£ £ £ £
Financial Liabilities
Derivative financial liabilities - - (1,145,453) (1,145,453)
Other payables - - (1,355,155) (1,355,155)
Total - - (2,500,608) (2,500,608)
The table below summarises the Company’s exposure to interest rate risk as
of 31 December 2021:
Total
As at
Floating Fixed Non-Interest 31 December
rate rate bearing 2021
£ £ £ £
Financial Assets
Investments designated at fair value
through profit or loss - - 159,614,094 159,614,094
Derivative financial assets - - 221,639 221,639
Other receivables - - 4,976,005 4,976,005
Due from broker - - 696 696
Margin account 1,381,413 - - 1,381,413
Cash and cash equivalents 3,091,245 - - 3,091,245
Total 4,472,658 - 164,812,434 169,285,092
Total
As at
Floating Fixed Non-Interest 31 December
rate rate bearing 2021
£ £ £ £
Financial Liabilities
Derivative financial liabilities - - (263,091) (263,091)
Due to broker - - (984,227) (984,227)
Other payables - - (1,496,629) (1,496,629)
Total - - (2,743,947) (2,743,947)
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company.
Credit risk is limited to the carrying value of financial assets at
31 December 2022 as follows:
As at As at
31 December 31 December
2022 2021
£ £
Financial assets at fair value through profit or loss 120,764,446 159,614,094
Derivative financial assets - 221,639
Other receivables 4,598,722 4,976,005
Cash and cash equivalents 2,890,620 3,091,245
Margin account 1,327,313 1,381,413
Due from broker - 696
Total 129,581,101 169,285,092
As at As at
31 December 31 December
Credit Rating Agency 2022 2021
£ £
Goldman Sachs & Co.LLC is a wholly-owned subsidiary of The Goldman Sachs Group, Inc. Standard & Poor’s A+ A+
Moody’s Unavailable Unavailable
Northern Trust (Guernsey) Limited which is a wholly owned subsidiary of The Northern Trust Corporation (“TNTC”) Standard & Poor’s A+ A+
Moody’s A2 A2
The main concentration of credit risk to which the Company is exposed arises
from the Company’s investments in listed preference shares issued by
companies incorporated in South Korea, which in most cases trade at a discount
to the corresponding common shares of the same companies. There is also
counterparty risk on these instruments as they are held with Northern Trust
(Guernsey) Limited as custodian to the Fund. Credit risk also arises from the
other receivables which represent dividends receivable on some of these equity
investments.
The Company is also exposed to counterparty credit risk on credit default
swaps, options, cash and cash equivalents, amounts due from brokers and other
receivable balances. The credit risk from cash and cash equivalents is managed
as cash is placed within a margin account held with Goldman Sachs & Co. LLC a
wholly-owned subsidiary of The Goldman Sachs Group, Inc.
Other cash and cash equivalents are held with Northern Trust (Guernsey)
Limited which is a wholly owned subsidiary of The Northern Trust Corporation
(“TNTC”). TNTC is publicly traded and a constituent of the S&P 500. Due
from broker amounts relate to trades awaiting settlement.
All transactions in listed securities are settled/paid for upon delivery using
approved brokers. Given the relatively short settlement period, and the high
credit quality of the brokers used, the risk here is considered to be minimal.
The Company’s policy is to minimise its exposure to counterparties with
perceived higher risk of default by dealing with counterparties with a high
credit rating as shown in the table above.
Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate
sufficient cash resources to settle its obligations in full as they fall due
or can only do so on terms that are materially disadvantageous. The
Company’s investments are relatively liquid and the Company holds sufficient
cash balances (or liquid investments) to meet its obligations as they fall
due. The Board reviews its resources and obligations on a regular basis to
ensure sufficient liquid assets are held. Further details relating to the
Board assessment of liquidity risk relating to the upcoming Realisation
Opportunity is included in Note 2c.
The table below analyses the maturity profile of the Company's financial
assets in order to provide a complete view of the Company's contractual
commitments and liquidity.
Less than 1 month 1-3 months 3-12 months Total as at 31 December 2022
£ £ £ £
Financial assets at fair value through profit or loss - 120,764,446 - 120,764,446
Other receivables - 4,598,722 - 4,598,722
Margin account - 1,327,313 - 1,327,313
Cash and cash equivalents 2,890,620 - - 2,890,620
Total 2,890,620 126,690,481 - 129,581,101
Less than 1 month 1-3 months 3-12 months Total as at 31 December 2021
£ £ £ £
Financial assets at fair value through profit or loss - 159,614,094 - 159,614,094
Derivative financial assets - 221,639 - 221,639
Other receivables - 4,976,005 - 4,976,005
Due from broker - 696 - 696
Margin account - 1,381,413 - 1,381,413
Cash and cash equivalents 3,091,245 - - 3,091,245
Total 3,091,245 166,193,847 - 169,285,092
As at 31 December 2022, the Company had no significant financial liabilities
other than payables arising directly
from investing activity:
Less than 1 month 1-3 months 3-12months Total as at 31 December 2022
£ £ £ £
Derivative financial liabilities (1,145,453) - - (1,145,453)
Other payables (344,696) (1,010,459) - (1,355,155)
Total (1,490,149) (1,010,459) - (2,500,608)
Less than 1 month 1-3 months 3-12months Total as at 31 December 2021
£ £ £ £
Derivative financial liabilities (984,227) - - (984,227)
Due to broker (263,091) - - (263,091)
Other payables (402,439) (1,094,190) - (1,496,629)
Total (1,649,757) (1,094,190) - (2,743,947)
Capital risk management
The Company’s objective when managing capital is to maintain an optimal
capital structure in order to reduce the cost of capital. The Company may
borrow capital, but as at 31 December 2022 there were no borrowings (as at 31
December 2021: £Nil). The Board considers the below gearing ratio to be
adequate, since total borrowings refer only to amounts due to brokers,
derivative liabilities, and other payables.
The gearing ratio below is calculated as total liabilities divided by total
equity.
As at As at
31 December 31 December
2022 2021
£ £
Total assets 129,581,101 169,285,092
Less: Total liabilities (2,500,608) (2,743,947)
Net Asset Value 127,080,493 166,541,145
Gearing Ratio 1.97% 1.65%
Share buybacks
The Directors have general Shareholder authority to purchase in the market up
to 40% of the Ordinary Shares in issue. The Directors intend to seek annual
renewal of this authority from Shareholders at each annual general meeting of
the Company.
Pursuant to this authority, and subject to Guernsey law and the discretion of
the Directors, the Company may repurchase Ordinary Shares in the market on an
on-going basis at a discount to NAV with a view to increasing the NAV per
Ordinary Share and assisting in controlling the discount to NAV per Ordinary
Share in relation to the price at which such Ordinary Shares may be trading.
Purchases by the Company will be made only at prices below the estimated
prevailing NAV per Ordinary Share based on the last published NAV but taking
account of movements in investments, stock markets, and currencies, in
consultation with the Investment Manager and at prices where the Directors
believe such purchases will result in an increase in the NAV per Ordinary
Share of the remaining Ordinary Shares.
The Directors will consider repurchasing Ordinary Shares when the price per
Ordinary Share plus the proforma cost to the Company per Share repurchased is
less than 95% of the NAV per Ordinary Share. The proforma cost per Share
should include any brokerage commission payable and costs of realising
portfolio securities to fund the purchase. The Directors may, at their
discretion, also consider repurchasing Ordinary Shares at a smaller discount
to NAV per Ordinary Share, provided that such purchase would increase the NAV
per Ordinary Share for any continuing Shareholders.
Realisation Opportunity
On 13 March 2023, the Company announced that pursuant to the Realisation
Opportunity, Shareholders who were on the register as at the record could
elect, during the Election Period, to redesignate all or part (provided that
such part be rounded up to the nearest whole Ordinary Share) of their Ordinary
Shares as Realisation Shares, subject to the aggregate NAV of the continuing
Ordinary Shares at the close of business on the last business day before the
Realisation Date being not less than £50 million.
The Ordinary Shares held by the Shareholders who elect for Realisation, will
be redesignated as Realisation Shares and the Portfolio will be split into two
separate and distinct Pools, namely the Continuation Pool (comprising the
assets attributable to the continuing Ordinary Shares) and the Realisation
Pool (comprising the assets attributable to the Realisation Shares).
With effect from the Realisation Date, the assets in the Realisation Pool will
be managed in accordance with an orderly realisation programme with the aim of
making progressive returns of cash, as soon as practicable, to those
Shareholders who elect to receive Realisation Shares. Ordinary Shares held by
Shareholders who do not submit a valid and complete election in accordance
with the Articles during the Election Period will remain as Ordinary Shares.
Unless it has already been determined that the Company will be wound-up, every
two years after the Realisation Date, the Directors will propose further
realisation opportunities for Shareholders who have not previously elected to
realise their Ordinary Shares using a similar mechanism to that described
above.
If the weighted average discount on the Portfolio is less than 25% over any
90-day period, then the Directors shall propose an ordinary resolution for the
winding up of the Company. If one or more Realisation Elections are duly made
and the NAV of the continuing Ordinary Shares at the close of business on the
last Business Day before the Reorganisation Date is less than £50 million,
the Directors may propose an ordinary resolution for the winding up of the
Company and may pursue a liquidation of the Company instead of splitting the
Portfolio into the Continuation Pool and the Realisation Pool.
21. Fair value measurement
IFRS 13 ‘Fair Value Measurement’ requires the Company to establish a fair
value hierarchy that prioritises the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under IFRS 13 ‘Fair Value
Measurement’ are set as follows:
· Level 1 Quoted prices (unadjusted) in active markets for identical
assets or liabilities;
· Level 2 Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly (that is, as
prices) or indirectly (that is, derived from prices); and
· Level 3 Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. For this purpose, the
significance of an input is assessed against the fair value measurement in its
entirety.
If a fair value measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a Level 3
measurement. Assessing the significance of a particular input to the fair
value measurement requires judgement, considering factors specific to the
asset or liability.
The determination of what constitutes ‘observable’ requires significant
judgement by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market.
The Company recognises transfers between levels of the fair value hierarchy as
of the end of the reporting year during which the transfers have occurred.
During the year ended 31 December 2022, financial assets of £Nil were
transferred from Level 1 to Level 2 (for the year ended 31 December 2021:
£Nil).
Investments whose values are based on quoted market prices in active markets,
and are therefore classified within Level 1, include Korean preference shares
and exchange traded options.
The Company holds investments in derivative financial instruments which are
classified as Level 2 within the fair value hierarchy. These consist of credit
default swaps with a fair value of £1,145,453 (as at 31 December 2021:
(£984,227)). The Company held no investments in derivative financial
instruments classified as Level 1 within the fair value hierarchy (as at
31 December 2021: options with a fair value of £221,639).
The fair value of credit default swaps is determined by estimating future
default probabilities using market standard models. The principal input into
the model is the credit curve. Credit spreads are observed directly from
broker data or third party vendors. The significant model inputs are
observable in the marketplace or set in the contract.
The following tables presents the Company’s financial assets and liabilities
by level within the valuation hierarchy as of 31 December 2022:
Total
As at
31 December
Level 1 Level 2 Level 3 2022
£ £ £ £
Financial assets/(liabilities) at fair value through
profit or loss:
Korean preference shares 120,764,446 - - 120,764,446
Financial derivative liabilities - (1,145,453) - (1,145,453)
Total net assets 120,764,446 (1,145,453) - 119,618,993
Total
As at
31 December
Level 1 Level 2 Level 3 2021
£ £ £ £
Financial assets/(liabilities) at fair value through
profit or loss:
Korean preference shares 159,614,094 - - 159,614,094
Financial derivative assets 221,639 - - 221,639
Financial derivative liabilities - (984,227) - (984,227)
Total net assets 159,835,733 (984,227) - 158,851,506
Cash and cash equivalents include cash in hand and deposits held with banks.
Amounts due to brokers and other payables represent the contractual amounts
and obligations due by the Company for settlement of trades and expenses.
Amounts due from brokers and other receivables represent the contractual
amounts and rights due to the Company for settlement of trades and income.
22. NAV reconciliation
The Company announces its NAV to the LSE daily, on each UK business day. The
following is a reconciliation of the NAV per Share attributable to
participating Shareholders as presented in these Financial Statements, using
IFRS to the NAV per Share reported to the LSE:
As at 31 December 2022 As at 31 December 2021
NAV per NAV per
Participating Participating
NAV Share NAV Share
£ £ £ £
Net Asset Value reported to the LSE 127,405,980 1.8383 162,661,741 2.3470
Adjustment to accruals and cash (3,136) (0.0001) - -
Adjustment for dividend income (322,351) (0.0046) 3,879,404 0.0559
Net Assets Attributable to Shareholders per Financial Statements 127,080,493 1.8336 166,541,145 2.4029
The published NAV per Share of £1.8383 (as at 31 December 2021: £2.3470) is
different from the accounting NAV per Share of £1.8336 (as at 31 December
2021: £2.4029) due to the adjustments noted above.
23. Subsequent events
These Financial Statements were approved for issuance by the Board on 27 April
2023. Subsequent events have been evaluated until this date.
In light of the high levels of inflation, it was resolved that the Directors
fees would increase by £1,500 per annum with effect from 1 January 2023.
On 13 March 2023, being 61 days before the Subsequent Realisation Date, the
Company published a circular pursuant to the Realisation Opportunity,
entitling the Shareholders to serve a written notice during the election
period (a “Realisation Election”) requesting that all or a part of their
holding of Ordinary Shares be re-designated to Realisation Shares, subject to
the aggregate NAV of the continuing Ordinary Shares on the last business day
before the Reorganisation Date being not less than £50 million. If
Shareholders elect to participate in the Realisation Opportunity, the
Company’s portfolio will be divided into two pools: the Continuation Pool;
and the Realisation Pool. Further information in respect of the Realisation
Opportunity is set forth in Note 18.
No further subsequent events have occurred.
Report of the Directors
For the year ended 31 December 2022
The Directors of the Company present their Annual Report and Audited Financial
Statements for the year ended 31 December 2022.
Principal Activity
The Company was incorporated with limited liability in Guernsey on 12 April
2013 as a company limited by shares and as an authorised closed-ended
investment company. The Company’s Shares were admitted to trading on the AIM
of the LSE on 14 May 2013. As an existing closed-ended fund, the Company is
deemed to be granted an authorised declaration in accordance with Section 8 of
the Protection of Investors (Bailiwick of Guernsey) Law, 2020, as amended and
Rule 6.02 of the Authorised Closed End Investment Schemes Rules 2008 on the
same date as the Company obtained consent under the Control of Borrowing
(Bailiwick of Guernsey) Ordinance 1959 to 1989.
Investment Objective and Investment Policy
The investment objective and investment policy of the Company is to provide
Shareholders with an attractive return on their investment, predominantly
through long-term capital appreciation, by investing primarily in listed South
Korean preference shares. The full investment objective and investment policy
are detailed in the Investment Objective and Dividend Policy of the Annual
Report.
Going Concern
In accordance with the Company’s Articles of Incorporation and its Admission
Document, the Company shall offer all Shareholders the right to elect to
realise some or all of the value of their Ordinary Shares (the “Realisation
Opportunity”), less applicable costs and expenses, on or prior to the fourth
anniversary of the Company’s admission to AIM and, unless it has already
been determined that the Company be wound-up, every two years thereafter.
On 13 March 2023, the Company announced that pursuant to the Realisation
Opportunity, Shareholders who are on the register as at the record date may
elect, during the Election Period, to redesignate all or part (provided that
such part be rounded up to the nearest whole Ordinary Share) of their holding
of Ordinary Shares as Realisation Shares. The Election Period commenced on 12
April 2023 and closes at 1pm, 5 May 2023.
Subject to the aggregate NAV of the continuing Ordinary Shares at the close of
business on the last Business day before the Realisation Date being not less
than £50 million, the Ordinary Shares held by the Shareholders who have
elected for Realisation will be redesignated as Realisation Shares and the
Portfolio will be split into two separate and distinct Pools, namely the
Continuation Pool (comprising the assets attributable to the continuing
Ordinary Shares) and the Realisation Pool (comprising the assets attributable
to the Realisation Shares). If one or more Realisation Elections are duly made
and the NAV of the continuing Ordinary Shares at the close of business on the
last Business Day before the Reorganisation Date is less than £50 million,
the Directors may propose an ordinary resolution for the winding up of the
Company and may pursue a liquidation of the Company instead of splitting the
Portfolio into the Continuation Pool and the Realisation Pool.
Currently, the Board does not know the number of Shareholders (or related
Shares) who will take up the Realisation Opportunity. Based on the uncertainty
of the uptake of the offer, there is a material uncertainty over the going
concern of the entity. As the assets of the Company consist mainly of
securities that are readily realisable, whilst the Directors acknowledge that
the liquidity of these assets needs to be managed, the Directors believe that
the Company has adequate financial resources to meet its liabilities as they
fall due in the foreseeable future and for at least twelve months from the
date of this Report, and that it is appropriate for the Financial Statements
to be prepared on a going concern basis, given that the Board believes the
Company will continue in existence post the Realisation Opportunity.
Viability Statement
In accordance with the UK Corporate Governance Code (July 2018) (the “UK
Code”), published by the Financial Reporting Council in 2018, the Board has
assessed the prospects of the Company over the three year period to 31
December 2025 (the “Viability Period”).
On 13 March 2023, the Company announced to offer all Shareholders the right to
elect, during the Election Period, to realise some or all of the value of
their Ordinary Shares, less applicable costs and expenses, on or prior to the
Realisation Date.
The Board and the Investment Manager believe that the investment opportunity
provided by the Company remains compelling, but the viability of the Company
is clearly contingent on the investment opportunity remaining in place, a
matter which the Board monitors on an ongoing basis. As the South Korean
preference shares held by the Company trade at a discount compared with common
shares for the same companies, the Company remains attractive to long term
investors over the Viability Period.
A period of three years has been chosen for the purposes of the assessment of
viability as the Board believes that this reflects a suitable time horizon for
reviewing the Company’s circumstances and strategy, taking into account the
investment policy, liquidity of investments, potential impact of economic
cycles, nature of operating costs, dividends and availability of funding.
The Directors consider that three years is a sufficient investment time
horizon to be relevant to shareholders and that choosing a longer time period
can present difficulties given the lack of longer term economic visibility.
The Board has monitored the developments of the Ukraine conflict and current
banking turmoil and considered the impacts they have had to date and continue
to assess the impacts they may have in the future. There remains continued
uncertainty on their development and scale such that predicting the impact
with any certainty remains challenging. The Board will continue to assess the
position.
The Board’s assessment of the Company over the Viability Period has been
made with reference to the Company’s current financial position and
prospects, the Company’s strategy, and risk appetite, having considered the
Company’s principal risks and uncertainties detailed below. The Board has
also considered the Company’s likely cash flows and the liquidity of its
portfolio.
It is noted that the Company currently has no gearing, though borrowing is
permitted under its constitution. In the event that the Company did consider
taking on debt, the Board would carefully assess the Company’s ability to
meet the debt obligations as they become due.
It is possible to imagine a number of scenarios, such as war, pandemic or
political events, which could severely impact the liquidity of the Company’s
investments.
The Board has assumed that the regulatory and fiscal regimes under which the
Company operates will continue in broadly the same form during the Viability
Period. The Board speaks with its Broker and legal advisers on a regular basis
to understand issues impacting the Company’s regulatory and fiscal
structure.
The Board has carried out a robust assessment of the principal risks and
uncertainties outlined below and they confirm they have a reasonable
expectation that the Company will be able to continue in operation to serve
Shareholders appropriately and meet its liabilities as they fall due over the
three year period to December 2025.
The Board, however, remains conscious that, should either:
(a) the aggregate Net Asset Value of the continuing Ordinary Shares at the
close of business on the last Business Day before the next Realisation Date,
(this being 12 May 2023) be less than £50 million; or
(b) the mean Weighted Average Discount on the Portfolio is less than 25%
over any 90 day period,
the Board will need to reassess the Company’s position and may propose an
ordinary resolution for the winding up of the Company.
Notice period of Investment Manager
The Board has assumed that the Investment Manager will remain in place during
the Viability Period. However, the Board acknowledges the risk of the
Investment Manager serving a twelve month notice period under the Investment
Management Agreement (“IMA”). To mitigate this risk, the Board meets and
communicates regularly with the Investment Manager to review its performance
and the Board’s relationship with the Investment Manager.
Failure of the Custodian to carry out its obligations to the Company
The Company’s assets are held in accounts maintained by the Company’s
Custodian. Failure by the Custodian to carry out its obligations to the
Company in accordance with the terms of the Custodian Agreement could have an
impact on the viability of the Company. To mitigate this risk, the Board
regularly receives reports from the Custodian, and through the Management and
Engagement Committee, monitors the relationship with the Custodian.
Loss of license or listing
The Board has assumed that the Company will retain its regulatory status and
listing throughout the Viability Period. The Company Secretary, Administrator,
and Broker report to the Board at least quarterly on regulatory matters and
confirm compliance with listing and other regulatory requirements.
Failure to implement and poor execution of the investment strategy
The Company maintains an investment policy as discussed in Summary Information
. The policy states that the Company must invest primarily in listed South
Korean preference shares, and also states that investments in other types of
securities are allowed as long as the investments track South Korean companies
or the South Korean market as a whole. Failure to implement the investment
strategy or poor execution by the Investment Manager would have an effect on
the viability of the Company. The Board ensures that the policy is being
implemented in the quarterly Board Meetings, where the Investment Manager
presents reports to the Board detailing the current portfolio and investment
performance.
The risks specifically associated with the South Korean economic and political
climate are discussed on Investment Manager’s Report .
Based on the Company’s processes for monitoring operating costs, the Share
price discount, the Investment Manager’s compliance with the investment
objective, asset allocation, the portfolio risk profile, liquidity risk, and
the robust assessment of the principal risks and uncertainties facing the
Company, the Board has concluded that there is a reasonable expectation that
the Company will be able to continue in operation and meet its liabilities as
they fall due over the Viability Period to 31 December 2025.
International Tax Reporting
For purposes of the US Foreign Accounts Tax Compliance Act, the Company
registered with the US Internal Revenue Service (“IRS”) as a Guernsey
reporting Foreign Financial Institution (“FFI”) in November 2014, received
a Global Intermediary Identification Number (2A7KNV.99999.SL.831), and can be
found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for the
automatic exchange of financial account information developed by the
Organisation for Economic Co-operation and Development (“OECD”), which has
been adopted by Guernsey and which came into effect on 1 January 2016.
The Board takes the necessary actions to ensure that the Company is compliant
with Guernsey regulations and guidance in this regard.
Results and Dividends
The results for the year ended 31 December 2022 are set out in the Statement
of Comprehensive Income. An annual dividend of 6.3732 pence per Share
(£4,417,079) was approved on 12 May 2022 and paid on 10 June 2022 in respect
of the year ended 31 December 2021. An annual dividend of 5.2311 pence per
Share (£4,238,124) was approved on 4 May 2021 and paid on 4 June 2021 in
respect of the year ended 31 December 2020.
The Board expects to declare an annual dividend on 2 May 2023 with a record
date on 10 May 2023 for the year ended 31 December 2022 based on dividends
received primarily from investments in South Korean preference shares net of
Korean withholding tax.
Shareholder Information
Further Shareholder information can be found in the Company Overview.
Investment Management
The Investment Manager of the Company is Weiss Asset Management LP, a Delaware
limited partnership formed on 10 June 2003 (the “Investment Manager”). The
key terms of the IMA and specifically the fee charged by the Investment
Manager are set out in Note 19 of the Financial Statements. The Board believes
that the investment management fee is competitive with other investment
companies with similar investment mandates.
The Board reviews, on an on-going basis, the performance of the Investment
Manager and considers whether the investment strategy utilised is likely to
achieve the Company’s investment objective.
Having considered the portfolio performance and investment strategy, the Board
has unanimously agreed that the interests of the Shareholders as a whole are
best served by the continuing appointment of the Investment Manager on the
terms agreed.
Directors
The details of the Directors of the Company during the year and at the date of
this Report are set out in Further Information.
Directors’ Interests
The Directors who held office at 31 December 2022 and up to the date of this
Report held the following numbers of Ordinary Shares beneficially:
As at 31 December 2022 As at 31 December 2021
Ordinary % of issued Ordinary % of issued
Shares share capital Shares share capital
Norman Crighton 20,000 0.03% 20,000 0.03%
Robert King N/A N/A 15,000 0.02%
Gillian Morris 3,934 0.01% 3,934 0.01%
Krishna Shanmuganathan - - N/A N/A
Wendy Dorey 2,552 0.00% N/A N/A
Krishna Shanmuganathan was appointed to the Board on 1 June 2022. Wendy Dorey
was appointed to the Board on 9 September 2022. Robert King resigned from the
Board on 30 September 2022. There have been no other changes in the interests
of the above Directors during the year.
Substantial Interests
The Disclosure, Guidance and Transparency Rules (“DTRs”) are contained in
the Financial Conduct Authority handbook. Section 5, the only section of the
DTRs which applies to AIM-listed companies, requires substantial Shareholders
to make relevant holding notifications to the Company. The Company must then
disseminate this information to the wider market. Details of major
Shareholders in the Company are shown below.
As at 31 December 2022
% of issued
Shareholders Country Shares share capital
City of London Investment Mgt Co UK 14,496,421 20.92%
Degroof Petercam Asset Mgt Belgium 10,125,000 14.61%
Merrill Lynch, Pierce, Fenner & Smith USA 7,000,000 10.10%
Dr Andrew M Weiss USA 5,316,888 7.67%
JBF Capital USA 4,259,300 6.15%
Mount Capital UK 2,534,000 3.66%
As at 31 December 2021
% of issued
Shareholders Country Shares share capital
City of London Investment Mgt Co UK 17,725,681 21.88%
Degroof Petercam Asset Mgt Belgium 10,125,000 12.50%
Merrill Lynch, Pierce, Fenner & Smith USA 7,000,000 8.64%
Dr Andrew M Weiss USA 5,316,888 6.56%
JBF Capital USA 3,177,500 3.92%
1607 Capital Partners UK 2,928,519 3.61%
Mount Capital UK 2,534,000 3.13%
There have been no significant changes to the substantial shareholdings at 27
April 2023.
Corporate Governance
The Company does not have a Main Market Listing on the LSE, and as such, the
Company is not required to comply with the UK Code as issued by the Financial
Reporting Council. However, the Board is committed to high standards of
corporate governance and has implemented a framework for corporate governance
which it considers to be appropriate for an investment company in order to
comply with the main principles of the UK Code. By complying with the main
principles of the UK Code, the Company is deemed to comply with the Code of
Corporate Governance (the “GFSC Code”) issued by the Guernsey Financial
Services Commission.
The Board has considered the principles and recommendations of the UK Code and
considers that reporting against the UK Code will provide better information
to Shareholders. To ensure on-going compliance with these principles, the
Board receives a report from the Company Secretary at each quarterly meeting,
identifying how the Company is in compliance and identifying any changes that
might be necessary.
The Board considers that it has maintained procedures during the year ended 31
December 2022 and up to the date of this Report to ensure that it complies
with the UK Code, except as explained elsewhere in this Annual Report and
Audited Financial Statements.
The Company became a member of the Association of Investment Companies (the
“AIC”) in February 2021.
Role of the Board
The Board is the Company’s governing body and has overall responsibility for
maximising the Company’s success by directing and supervising the affairs of
the business and meeting the appropriate interests of Shareholders and
relevant stakeholders, while enhancing the value of the Company and also
ensuring protection of investors. A summary of the Board’s responsibilities
is as follows:
· statutory obligations and public disclosure;
· strategic matters and financial reporting;
· risk assessment and management including reporting compliance,
governance, monitoring, and control; and
· other matters having a material effect on the Company.
The Board’s responsibilities for the Annual Report are set out in the
Directors' Responsibility Statement.
Although the Company is domiciled in Guernsey, the Board has considered the
requirements of Section 172 of the Companies Act 2006 in the UK. Section 172
of the Companies Act requires that the Directors of the Company act in the way
they consider, in good faith, is most likely to promote the success of the
Company for the benefit of all stakeholders, including suppliers, customers
and shareholders. The Board has engaged external companies to undertake the
investment management, administrative, and custodial activities of the
Company. Documented contractual arrangements are in place with these companies
which define the areas where the Board has delegated responsibility to them.
The Board needs to ensure that the Annual Report and Audited Financial
Statements, taken as a whole, are fair, balanced, and understandable and
provide the information necessary for Shareholders to assess the Company’s
performance, business model, and strategy.
In seeking to achieve this, the Directors have set out the Company’s
investment objective and investment policy, have explained how the Board and
its delegated committees operate, have explained how the Directors review the
risk environment within which the Company operates, and have set appropriate
risk controls. Furthermore, throughout the Annual Report and Audited Financial
Statements, the Board has sought to provide further information to enable
Shareholders to better understand the Company’s business and financial
performance.
Composition and Independence of the Board
The Board currently comprises four non-executive Directors, all of whom are
considered independent of the Investment Manager. The Directors of the Company
are listed on the Corporate Information section and the Board of Directors
section.
The Chair is Norman Crighton. Biographies for Norman and all other Directors
appear on Board of Directors. In considering the independence of the Chair,
the Board has taken note of the provisions of the UK Code relating to
independence, and has determined that he is an Independent Director.
The Board believes it has a good balance of skills and experience to ensure it
operates effectively. The Chair is responsible for leadership of the Board and
ensuring its effectiveness.
As the Chair is an Independent Director, no appointment of a Senior
Independent Director has been made. The Company has no employees and therefore
there is no requirement for a Chief Executive or a whistleblowing policy.
The Company holds a minimum of four Board Meetings per year to discuss general
management, structure, finance, corporate governance, marketing, risk
management, compliance, asset allocation and gearing, contracts, and
performance. The quarterly Board Meetings are the principal source of regular
information for the Board, enabling it to determine policy and to monitor
performance, compliance, and controls. These meetings are supplemented by
communication and discussions throughout the year.
A representative of the Investment Manager, Administrator, and Company
Secretary may attend each Board Meeting either in person, by video conference
or by telephone, thus enabling the Board to fully discuss and review the
Company’s operations and performance. Each Director has direct access to the
Investment Manager and Company Secretary and may, at the expense of the
Company, seek independent professional advice on any matter.
The UK Corporate Governance Code limits the tenure of a Board member to nine
years, with additional explanations to be provided should the recommendation
be exceeded. Norman Crighton has reached this length of service at the date of
these Financial Statements.
Attendance at the Board and other Committee Meetings during the year was as
follows:
Number of Norman Robert Gillian Krishna Wendy
meetings held Crighton King Morris Shanmuganathan Dorey
Quarterly Board Meetings 4 4 3 4 2 1
Audit Committee Meetings 4 4 4 4 1 -
Management Engagement Committee Meetings 1 1 - 1 1 1
Ad-hoc Board Meetings 5 3 4 5 2 1
Krishna Shanmuganathan was appointed to the Board on 1 June 2022. Wendy Dorey
was appointed to the Board on 9 September 2022. Robert King resigned from the
Board on 30 September 2022.
Board Diversity
The Board considers the composition of the Board on an on-going basis.
Composition, Succession and Evaluation
The Board of Directors and its Committees are currently considered to be
adequately composed in order to be able to discharge their duties effectively.
However when considering new appointments in the future, the Board will
ensure that a diverse group of candidates is considered in accordance with its
Diversity Policy and that appointments are made against set objective
criteria.
The Board members have been briefed about their ongoing responsibilities as
Directors as part of each individual Director’s induction process and the
Board receives ongoing guidance in this regard on an “as needed” bases
from the Company Secretary and legal advisers.
The composition of the Board, together with its performance and approach to
succession planning is considered annually at the time of the Board’s annual
performance appraisal.
The performance of the Board, its committees and individual Directors
(including the Chair) is evaluated annually through a self-assessment process
coordinated by the Administrator which then circulates the findings. The Board
will consider the need for, and the benefits of, having this process
externally facilitated by an independent third party from time to time.
Re-election
The Articles of Incorporation provide that one-third of the Directors retire
by a voluntary rotation basis at each Annual General Meeting (“AGM”).
However, in order to meet the highest standards of corporate governance, the
Directors have agreed to stand for re-election annually. The Directors may at
any time appoint any person to be a Director either to fill a casual vacancy
or as an addition to the existing Directors. Any Director so appointed shall
hold office only until, and shall be eligible for re-election at, the next AGM
following their appointment.
Although the Company looks at not retaining the Chair of the Board in the post
beyond nine years from date of first appointment on the Board, the Board have
not set such a formal policy in place since the Company shareholders decide,
on an annual basis, whether or not to support the continuation of the Chair.
Board Performance
The Board undertakes an evaluation of its own performance and that of
individual Directors on an annual basis. In order to review its effectiveness,
the Board carries out a process of formal self-appraisal. The Board considers
how it functions as a whole and also reviews the individual performance of its
members. This process is conducted by the respective Chair reviewing each
members’ performance, contributions, and commitment to the Company by verbal
discussion.
The Board considers it has a breadth of experience relevant to the Company,
and the Directors believe that any changes to the Board’s composition can be
managed without undue disruption.
In accordance with the UK Code, when 20% or more of Shareholder votes have
been cast against a Board recommendation for a resolution, the Company should
explain, when announcing voting results, what actions it intends to take to
consult Shareholders in order to understand the reasons behind the result. An
update on the views received from shareholders and actions taken should be
published no later than six months after the Shareholder meeting. The Board
should then provide a final summary in the Annual Report and, if applicable,
in the explanatory notes to resolutions at the next shareholder meeting, on
what impact the feedback has had on the decisions the Board has taken and any
actions or resolutions now proposed. During the year, no resolution
recommended by the Board received more than 20% of votes against it.
Committees of the Board
The Board has established an Audit Committee and a Management and Engagement
Committee. All Terms of Reference for both Committees are available from the
Company Secretary upon request or on the Company’s website,
www.weisskoreaopportunityfund.com.
Audit Committee
The Company has established an Audit Committee with formally delegated duties
and responsibilities within written terms of reference. The Audit Committee is
chaired by Gill Morris. The Audit Committee meets formally at least twice a
year. Due to the small size of the Board, the Board considers it appropriate
that all Directors should be members of the Audit Committee.
Appointment to the Audit Committee is for a period of up to three years, which
may be extended for two further three year periods.
The table in the Report of Directors sets out the number of Audit Committee
Meetings held during the year ended 31 December 2022 and the number of such
meetings attended by each Audit Committee member.
A report of the Audit Committee detailing responsibilities and activities is
presented below.
Management and Engagement Committee
The Company has established a Management and Engagement Committee with
formally delegated duties and responsibilities within written terms of
reference. The Management and Engagement Committee was chaired by Robert King
until the date of his resignation and Wendy Dorey was appointed in his place.
Due to the small size of the Board, the Board considers it appropriate that
all Directors should be members of the Management and Engagement Committee.
The principal duties of the Management and Engagement Committee are to review
the performance of and contractual arrangements with the Investment Manager
and all other service providers to the Company (other than the External
Auditor).
During the Management and Engagement Committee meeting held on 17 November
2022, the quality of the services provided by the Investment Manager as well
as the other service providers was reviewed. The Management and Engagement
Committee also reviewed the fees of all other service providers (other than
the External Auditor).
Nomination Committee
The Board does not have a separate Nomination Committee. The Board as a whole
fulfils the function of a Nomination Committee. Any proposal for a new
Director will be discussed and approved by the Board. The Board will determine
whether an external search consultancy or open advertising is used in the
appointments of non-executive Directors in the future.
Remuneration Committee
In view of its non-executive and independent nature, the Board considers that
it is not appropriate for there to be a Remuneration Committee as anticipated
by the UK Code because this function is carried out as part of the regular
Board business. A Remuneration Report prepared by the Board is contained
below. Directors’ remuneration is considered on an annual basis.
As at 31 December 2022, Directors’ fees per annum were £35,000 payable to
Norman Crighton as the Chair, £32,500 to Gill Morris as Chair of the Audit
Committee, £30,000 to Robert King prorated to 30 September 2022, being his
date of resignation, £30,000 to Krishna Shanmuganathan and Wendy Dorey
prorated from their dates of appointment, 1 June 2022 and 9 September 2022
respectively. The Board increased their fees by £1,500 per Director, per
annum effective 1 January 2023.
Environmental, Social and Governance Matters
As an investment company, WKOF’s own direct environmental impact is minimal.
Other than flights by the Chair and other directors based in the UK to attend
meetings, the Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions producing
sources under the Companies Act 2006 (Strategic Reporting and Directors’
Reports) Regulations 2013 or the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018.
The Company’s operations are delegated to third party service providers, and
the Company has no employees. The Board seeks assurances, at least annually,
from its main counterparties that they comply with the provisions of the UK
Modern Slavery Act 2015 and maintain adequate safeguards in keeping with the
provisions of the Bribery Act 2010 and Criminal Finances Act 2017.
The Board and WAM recognise that governance issues have an effect on its
investee companies. The Board supports WAM in its belief that good corporate
governance will help deliver long term Shareholder value. Since inception of
the Company, improved corporate governance has been one of the main drivers of
value, as some Korean companies have improved the efficiency of their balance
sheets by buying back preference shares and improving dividend payouts. The
Board and WAM will continue to support these changes in its investee companies
and expect these governance improvements to continue in Korea.
Geopolitical Risks
At the time of signing these Financial Statements, there is an increased level
of global uncertainty associated with the conflict in Ukraine. The long-term
impacts of Ukraine, in addition to the continued uncertainty regarding
regional conflicts in North Asia, are not yet known but are likely to result
in increased market and economic volatility, which may in turn have an impact
on the Company.
Internal Controls
The Board is ultimately responsible for establishing and maintaining the
Company’s system of internal controls and for maintaining and reviewing the
system’s effectiveness. The Company’s risk matrix continues to be the
basis of the Company’s risk management process in establishing the
Company’s system of internal financial and reporting controls. The risk
matrix is prepared and maintained by the Board, which initially identifies the
risks facing the Company and then collectively assesses the likelihood of each
risk, the impact of those risks, and the strength of the controls operating
over each risk. The Company’s system of internal controls is designed to
manage rather than to eliminate the risk of failure to achieve the Company’s
objectives, and by the internal controls’ nature, can only provide
reasonable and not absolute assurance against misstatement and loss. These
controls aim to ensure that assets of the Company are safeguarded, proper
accounting records are maintained, and the financial information for
publication is reliable.
The UK Code requires Directors to conduct at least annually a review of the
Company’s system of internal controls, covering all controls including
financial, operational, compliance, and risk management. The Board has
evaluated the Company’s system of internal controls. In particular, it has
prepared a process for identifying and evaluating the significant risks
affecting the Company and the policies by which these risks are managed. The
process has resulted in a low to medium risk assessment.
The Board has delegated the management of the Company’s investment
portfolio, administration, registrar, and corporate secretarial functions,
which includes the independent calculation of the Company’s NAV and the
production of the audited Annual Report and Financial Statements. Whilst the
Board delegates these functions, it remains responsible for the functions it
delegates and for the systems of internal controls. Formal contractual
agreements have been put in place between the Company and providers of these
services. On an on-going basis, Board reports are provided at each quarterly
Board Meeting from the Investment Manager, Administrator, Registrar, and
Company Secretary, and a representative from the Investment Manager is asked
to attend these meetings.
In common with most investment companies, the Company does not have an
internal audit function. All of the Company’s management functions are
delegated to the Investment Manager, Administrator, Registrar, and Company
Secretary, which have their own internal audit and/or risk assessment
functions.
The Company’s risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its meetings
and annually by the Board. The Board believes that the Company has adequate
and effective systems in place to identify, mitigate, and manage the risks to
which it is exposed.
Shareholder Engagement
The Directors welcome Shareholders’ views and place great importance on
communication with the Company’s Shareholders. Shareholders wishing to meet
with the Chair and other Board members should contact the Company’s
Administrator.
The Investment Manager and Broker maintain a regular dialogue with
institutional Shareholders, the feedback from which is reported to the Board.
The Company’s AGM provides a forum for Shareholders to meet and discuss
issues of the Company and provides Shareholders with the opportunity to vote
on the resolutions as specified in the Notice of AGM. The Notice of AGM and
the results are released to the London Stock Exchange in the form of an
announcement.
In addition, the Company maintains a website which contains comprehensive
information, including links to regulatory announcements, Share price
information, financial reports, investment objective, and investor contacts.
Auditor
The Independent Auditor, KPMG Channel Islands Limited, has indicated their
willingness to continue in office. Accordingly, a resolution for their
reappointment will be proposed at the forthcoming AGM.
Disclosure of Information to the Independent Auditor
The Directors who hold office at the date of approval of this Directors’
Report confirm that, so far as they are aware, there is no relevant audit
information of which the Company’s independent auditor is unaware, and that
each Director has taken all the steps they ought to have taken as a Director
to make themself aware of any relevant audit information and to establish that
the Company’s independent auditor is aware of that information.
Signed on behalf of the Board by:
Norman Crighton
Gill Morris
Chair
Director
28 April
2023
28 April 2023
Statement of Principal and Emerging Risks and Uncertainties
For the year ended 31 December 2022
The Company’s risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its meetings
and annually by the Board. The Board believes that the Company has adequate
and effective systems in place to identify, mitigate, and manage the risks to
which it is exposed.
Emerging Risks
In order to recognise any new risks that may impact the Company and to ensure
that appropriate controls are in place to manage those risks, the Audit
Committee undertakes a regular review of the Company’s Risk Matrix. This
review took place on four occasions during the year.
Geopolitical Risks
Risks to global growth have been heightened as a result of the conflict in
Ukraine. The level of tension between North and South Korea fluctuates. There
is a heightened risk of malicious cyber activity. Through the Management
Engagement Committee, the Company asks its service providers to confirm that
they have appropriate safeguards in place to mitigate the risk of
cyber-attacks and remote working (including minimising the adverse
consequences arising from any such attack), that they provide regular updates
to the Board on cyber security, and conduct ongoing monitoring of industry
developments in this area. None of the Service Providers has reported any
problems regarding cyber security when questioned by the MEC.
Principal Risks and Uncertainties
In respect of the Company’s system of internal controls and reviewing its
effectiveness, the Directors:
• are satisfied that they have carried out a robust assessment
of the principal risks facing the Company, including those that would threaten
its business model, future performance, solvency, or liquidity; and
• have reviewed the effectiveness of the risk management and
internal control systems, including material financial, operational, and
compliance controls (including those relating to the financial reporting
process) and no significant failings or weaknesses were identified.
The principal risks and uncertainties which have been identified and the steps
which are taken by the Board to mitigate them are as follows:
Investment Risks
The Company is exposed to the risk that its portfolio fails to perform in line
with its investment objective and policy if markets move adversely or if the
Investment Manager fails to comply with the investment policy. The Board
reviews reports from the Investment Manager at the quarterly Board Meetings,
with a focus on the performance of the portfolio in line with its investment
policy. The Administrator is responsible for ensuring that all transactions
are in accordance with the investment restrictions.
Operational Risks
The Company is exposed to the risk arising from any failures of systems and
controls in the operations of the Investment Manager, Administrator, and the
Custodian. The Board and its Committees regularly review reports from the
Investment Manager and the Administrator on their internal controls. The
Administrator will report to the Investment Manager any valuation issues which
will be brought to the Board for final approval as required.
Accounting, Legal and Regulatory Risks
The Company is exposed to the risk that it may fail to maintain accurate
accounting records, fail to comply with requirements of its Admission
Document, and fail to meet listing obligations. The accounting records
prepared by the Administrator are reviewed by the Investment Manager. The
Administrator, Broker, and Investment Manager provide regular updates to the
Board on compliance with the Admission Document and changes in regulation.
Discount Management
The Company is exposed to Shareholder dissatisfaction through inability to
manage the Share price discount to NAV. The Board and its Broker monitor the
Share price discount (or premium) continuously and have engaged in Share
buybacks from time to time to help minimise any such discount. The Board
believes that it has access to sufficiently liquid assets to help manage the
Share price discount. The Company's discount management programme is described
within Note 18.
Liquidity of Investments
The Korean preference shares typically purchased by the Company generally have
smaller market capitalisations and lower levels of liquidity than their common
share counterparts. These factors, among others, may result in more volatile
price changes in the Company’s assets as compared to the South Korean stock
market or other more liquid asset classes. This volatility could cause the NAV
to go up or down dramatically.
In order to realise its investments, the Company will likely need to sell its
holdings in the secondary market, which could prove difficult if adequate
liquidity does not exist at the time and could result in the values received
by the Company being significantly less than their holding values. The
liquidity of the market for preference shares may vary materially over time.
There can be no guarantee that a liquid market for the Company’s assets will
exist or that the Company’s assets can be sold at prices similar to the
published NAV. Illiquidity could also make it difficult or costly for the
Company to purchase securities, and this could result in the Company holding
more cash than anticipated. Furthermore, it is possible that South Korea could
impose currency-exchange or capital controls on foreign investors, making it
difficult or impossible for the Company to repatriate funds. The Investment
Manager considers the liquidity of secondary trading in assessing and managing
the liquidity of the Company’s investments. The Board reviews the
Company’s resources and obligations on a regular basis with a view to
ensuring that sufficiently liquid assets are held for the expected day to day
operations of the Company. However, if the Company were required to liquidate
a substantial portion of its assets at a single time, it is likely that the
market impact of the necessary sale transactions would impact the value of the
portfolio materially.
Fraud Risk
The Company is exposed to fraud risk. The Audit Committee continues to monitor
the fraud, bribery, and corruption policies of the Company. The Board receives
an annual confirmation from all service providers that there have been no
instances of fraud or bribery.
Financial Risks
The financial risks, including market, credit, and liquidity risks, faced by
the Company are set out in the Annual Report of the Company. These risks and
the controls in place to reduce the risks are reviewed at the quarterly Board
Meetings.
Climate Risks
Climate change is a growing area of focus for regulators, companies, investors
and other stakeholders. Climate related risks include both physical risks
from global warming and extreme weather events as well as transition risks
(e.g. increased regulation) and litigation risks. Climate risks are
incorporated in the ESG analysis under environmental factors.
Directors’ Responsibility Statement
For the year ended 31 December 2022
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law they have elected to prepare the Financial
Statements in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union and applicable law.
Under Company law the Directors must not approve the Financial Statements
unless they are satisfied that the Financial Statements give a true and fair
view of the state of affairs of the Company and of its profit or loss for that
period. In preparing these Financial Statements, the Directors are required
to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant, and
reliable;
· state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements;
· assess the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend
to liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable the Directors to ensure that the Financial Statements comply with the
Companies (Guernsey) Law, 2008. They are responsible for such internal
controls as they determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in Guernsey governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
The Directors confirm that they have complied with the above requirements in
preparing the Annual Report and Financial Statements and that to their best
knowledge and belief:
· the Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position, and profit or loss of the Company;
and
· the Directors’ Report includes a fair review of the development
and performance of the business and the position of the issuer, together with
a description of the principal risks and uncertainties that they face.
We consider the Annual Report and Financial Statements, taken as a whole, to
be fair, balanced, and understandable and provides the information necessary
for Shareholders to assess the Company’s position and performance, business
model, and strategy.
The Board of Directors confirms that, throughout the period covered by the
Financial Statements, the Company complied with the GFSC Code through its
compliance with the UK Code.
On behalf of the Board,
Norman Crighton
Gill Morris
Chair
Director
28 April
2023
28 April 2023
Audit Committee Report
For the year ended 31 December 2022
Dear Shareholders,
On the following pages, we present the Audit Committee’s Report for 2022,
setting out the responsibilities of the Audit Committee and its key activities
in 2022.
The Audit Committee has reviewed the Company’s financial reporting,
significant areas of judgement and estimation within the Company’s Financial
Statements, the independence and effectiveness of the External Auditor, and
the internal control and risk management systems of the Company’s service
providers. The Audit Committee considered whether the Annual Report and
Financial Statements are fair, balanced, and understandable and whether they
provided the necessary information for Shareholders to assess the Company’s
performance, business model, and strategy before recommending them to the
Board for approval. In order to assist the Audit Committee in discharging
these responsibilities, regular reports are received from the Investment
Manager, Administrator, and External Auditor. Following its review of the
independence and effectiveness of the Company’s External Auditor, the Audit
Committee has recommended to the Board that KPMG Channel Islands Limited be
reappointed as Auditor, which the Board will submit for approval to the
Company’s Shareholders at the forthcoming AGM.
A member of the Audit Committee will continue to be available at each AGM to
respond to any Shareholder questions on the activities of the Audit Committee.
Responsibilities
The Audit Committee reviews and recommends the approval of the Financial
Statements of the Company to the Board and is the forum through which the
External Auditor reports to the Board of Directors. The External Auditor and
the Audit Committee will meet together without representatives of either the
Administrator or Investment Manager being present at least once a year.
The role of the Audit Committee includes:
• monitoring the integrity of the published Financial Statements
of the Company;
• reviewing and reporting to the Board on the significant issues,
judgements, and estimates made in the preparation of the Company’s published
Financial Statements;
• monitoring and reviewing the quality and effectiveness of the
External Auditor and their independence;
• considering and making recommendations to the Board on the
appointment, reappointment, replacement, and remuneration of the Company’s
External Auditor;
• reviewing the Company’s procedures for prevention, detection
and reporting of fraud, bribery, and corruption; and
• monitoring and reviewing the internal control and risk
management systems of the service providers.
The Audit Committee’s full terms of reference can be obtained by contacting
the Company’s Secretary or on the Company’s website,
www.weisskoreaopportunityfund.com.
Key Activities of the Audit Committee
The following sections discuss the assessments made by the Audit Committee
during the year:
Financial Reporting
The Audit Committee’s review of the Annual Report and Audited Financial
Statements focused on the following significant areas:
Valuation of Investments
The Company’s financial investments had a fair value of £120,764,446 as at
31 December 2022 and represent the majority of the net assets of the Company.
The majority of the investments are listed and traded, and the valuation is by
reference to the fair value measurement required by IFRS. The Audit Committee
considered the fair value of the investments held by the Company as at 31
December 2022 to be reasonable from a review of the information provided by
the Investment Manager and Administrator. All prices have been confirmed by
the Administrator to independent pricing sources as at 31 December 2022.
The Investment Manager and Administrator confirmed to the Audit Committee that
they were not aware of any material misstatements including matters relating
to the Financial Statements’ presentation, nor were they aware of any fraud
or bribery relating to the Company’s activities. Furthermore, the External
Auditor reported to the Audit Committee that no material misstatements were
found in the course of their work.
Following a review of the presentations and reports from the Administrator and
consulting, where necessary with the External Auditor, the Audit Committee is
satisfied that the Financial Statements appropriately address the critical
judgements and key estimates made in the preparation of the Financial
Statements (both in respect to the amounts reported and the disclosures). The
Audit Committee is also satisfied that the significant assumptions used for
determining the value of assets and liabilities have been appropriately
scrutinised and challenged and are sufficiently robust.
Risk Management
The Audit Committee continues to manage the Company's risks. All risks are
reviewed and assessed at least once a year with key risks or a sub-section
thereof being presented to the Board and discussed at most Board meetings.
Where necessary, actions to improve controls or mitigation of risks are
implemented. The last Board meeting at which risks were discussed was held on
17 November 2022.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery, and corruption
policies of the Company. The Board receives a confirmation from all service
providers that there have been no instances of fraud or bribery.
The External Auditor
Independence, Objectivity and Fees
The independence and objectivity of the External Auditor is reviewed by the
Audit Committee, which also reviews the terms under which the External Auditor
is appointed to perform non-audit services. The Audit Committee has
established pre-approval policies and procedures for the engagement of the
External Auditor to provide audit and assurance services.
The External Auditor may not provide a service which:
• places them in a position to audit their own work;
• creates a mutuality of interest;
• results in the External Auditor developing close relationships
with service providers of the Company, in respect of services to the Company;
• results in the External Auditor functioning as a manager or
employee of the Company; and
• puts the External Auditor in the role of advocate of the
Company.
As a general rule, the Company does not utilise the External Auditor for
internal audit purposes, secondments, or valuation advice. Services such as
tax compliance, tax structuring, private letter rulings, accounting advice,
quarterly reviews, and disclosure advice are normally permitted but will be
pre-approved by the Audit Committee.
The following table summarises the remuneration payable to KPMG Channel
Islands Limited and to other KPMG member firms for audit and non-audit
services:
For the year ended For the year ended
31 December 2022 31 December 2021
KPMG Channel Islands Limited £ £
Annual audit 43,500 39,000
KPMG LLP
Tax fees (UK Reporting Fund Status) 12,000 5,750
For the year ended 31 December 2022, the Company has engaged KPMG LLP to
provide tax services, a separate entity to KPMG Channel Islands Limited.
The Audit Committee does not consider KPMG Channel Islands Limited’s
independence to be under threat. In making this assessment, the Audit
Committee has concluded that the non-audit fees, disclosed above, do not
relate to prohibited services. In approving the non-audit services, the Audit
Committee considered the safeguards put in place by KPMG Channel Islands
Limited to reduce the threats to independence and objectivity to an acceptable
level.
KPMG Channel Islands Limited has been the External Auditor from the date of
the initial listing on the London Stock Exchange. The UK Code introduced a
recommendation that the external audit be put out to tender every ten years.
The Audit Committee has noted this and will develop a plan for the tender
process in 2023.
The Audit Committee has examined the scope and results of the audit, its cost
effectiveness, and the independence and objectivity of the External Auditor,
with particular regard to non-audit fees, and considers KPMG Channel Islands
Limited, as External Auditor, to be independent of the Company.
Performance and Effectiveness
During the year, when considering the effectiveness of the External Auditor,
the Audit Committee has taken into account the following factors:
• The audit plan presented to it before the audit;
• Changes in audit personnel;
• The post audit report including variations from the original
plan, if any;
• The External Auditor’s report on independence; and
• Feedback from both the Investment Manager and Administrator.
Further to the above, at the conclusion of the 2022 audit fieldwork, the Audit
Committee performed specific evaluation of the performance of the External
Auditor through discussion with the Administrator and Investment Manager, as
well as the audit team itself.
There were no significant adverse findings from this evaluation.
Reappointment of External Auditor
As noted above the Board intends to commence a formal tender process for the
position of External Auditor with suitably qualified firms during 2023.
Internal Control and Risk Management Systems
After consultation with the Investment Manager, Administrator, and External
Auditor, the Audit Committee has considered the impact of the risk of the
override of controls by its service providers, the Investment Manager, and
Administrator.
The Audit Committee reviews externally prepared assessments of the control
environment in place at the Administrator, with the Administrator providing a
Service Organisation Controls Report on a bi-annual basis. The Audit Committee
noted that the Management and Engagement Committee received a self-assessment
from the Investment Manager and no issues were identified in this.
Additionally, representatives of the Investment Manager meet with the Board of
Directors annually to discuss and review the controls in place at the
Investment Manager. No significant failings or weaknesses were identified in
these reviews.
The Audit Committee has also reviewed the need for an internal audit function.
The Audit Committee has decided that the systems and procedures employed by
the Investment Manager, as well as the Administrator’s internal audit
function provide sufficient assurance that a sound system of internal
controls, which safeguards the Company’s assets, is maintained. An internal
audit function specific to the Company is therefore considered unnecessary.
In finalising the Financial Statements for recommendation to the Board for
approval, the Audit Committee is satisfied that, taken as a whole, the Annual
Report and Financial Statements are fair, balanced, and understandable. The
Board has accepted this approval.
For any questions on the activities of the Audit Committee not addressed in
the foregoing, a member of the Audit Committee remains available to attend
each AGM to respond to such questions.
The Audit Committee Report was approved by the Board on 28 April 2023 and
signed on behalf of the Audit Committee by:
Gill Morris
Chair, Audit Committee
28 April 2023
Directors’ Remuneration Report
For the year ended 31 December 2022
Introduction
An ordinary resolution for the approval of the Directors’ Remuneration
Report was put to the Shareholders at the AGM held on 21 July 2022.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the
Directors’ remuneration. No advice or services were provided by any external
person in respect of the Board’s consideration of the Directors’
remuneration.
The Company’s policy is that the fees payable to the Directors should
reflect the time spent by the Directors on the Company’s affairs and the
responsibilities borne by the Directors, and be sufficient to attract, retain,
and motivate Directors of a quality required to run the Company successfully.
The Chair of the Board is paid a higher fee in recognition of his additional
responsibilities, as is the Chair of the Audit Committee. The policy is to
review fee rates periodically, although such a review will not necessarily
result in any changes to the rates, and account is taken of fees paid to
directors of comparable companies. The Directors of the Company are
remunerated for their services at such a rate as the Directors determine,
provided that the aggregate amount of such fees does not exceed £150,000 per
annum.
There are no long term incentive schemes provided by the Company and no
performance fees are paid to Directors.
None of the Directors has a service contract with the Company, but each of the
Directors is appointed by a letter of appointment which sets out the main
terms of their appointment. Directors hold office until they retire by
rotation or cease to be a Director in accordance with the Articles of
Incorporation, by operation of law, or until they resign.
Remuneration
Directors are remunerated in the form of fees, payable quarterly in arrears,
to the Director personally. No Director has been paid additional remuneration
outside their normal Directors’ fees and expenses.
As at 31 December 2022, Directors' fees were: £35,000 payable to the Chair of
the Board, £32,500 to the Chair of the Audit Committee, and £30,000 to the
other Directors. The Board increased their fees by £1,500 per Director, per
annum effective 1 January 2023.
The Directors paid during the year were as follows:
For the year ended For the year ended
31 December 2022 31 December 2021
£ £
Norman Crighton 35,000 30,000
Gillian Yvonne Morris 32,500 11,553
Robert King 22,500 24,000
Stephen Coe - 20,625
Krishna Shanmuganathan 17,466 -
Wendy Dorey 9,308 -
116,774 86,178
Stephen Coe resigned from the Board on 30 September 2021. Krishna
Shanmuganathan was appointed to the Board on 1 June 2022. Wendy Dorey was
appointed to the Board on 9 September 2022. Robert King resigned from the
Board on 30 September 2022.
Signed on behalf of the Board by:
Norman Crighton
Gill Morris
Chair
Director
28 April 2023
28 April 2023
Board of Directors
The Company had five Directors during the year ended 31 December 2022 and will
revert to three Directors after the current Chair has resigned this year. All
Directors are considered independent of the Investment Manager.
Norman Crighton (aged 56)
Norman Crighton is Chair of the Company. Norman Crighton is an experienced
public company director having served on the boards of eight closed-end funds
and one operating company over the past ten years. Currently Norman is also
Non-Executive Chair of RM Infrastructure Income plc, AVI Japan Opportunity
Trust plc and Harmony Energy Income Trust plc.
Norman has extensive fund experience having previously been Head of closed-end
Funds at Jefferies International and Investment Manager at Metage Capital Ltd.
leveraging his 31 years of experience in investment trusts. His career in
investment banking covered research, sales, market making and proprietary
trading, servicing major international institutional clients over 15 years.
His work in many countries included restructuring closed-end funds as well as
several IPOs. During his time as a fund manager, Norman managed portfolios of
closed-end funds on a hedged and unhedged basis covering developed and
emerging markets.
Following on from his long-term promotion of best corporate governance
practice, Norman has more recently been focusing on expanding his work into
Environmental and Social issues. His work in the investment trust industry is
backed up with a master’s degree from the University of Exeter in Finance
and Investment and a BA(Hons) in Applied Economics. Norman is British and
resident in the United Kingdom.
Gillian Yvonne Morris (aged 59)
Gill is Chair of the Audit Committee. She is also a non-executive director and
Chair of the Audit Committee at The International Stock Exchange and a
Director of CICAP GP Limited. She also runs her own consultancy business. She
qualified as a Chartered Accountant with the Institute of Chartered
Accountants of England & Wales in 1988 and a Chartered Tax Advisor with the
Chartered Institute of Taxation in 1994. She started her career in 1985 as a
tax advisor at Touche Ross & Co. in London. She worked with Touche Ross & Co.
and KPMG in Australia before returning to Guernsey with KPMG. She moved into
the industry in 1994, joining Specsavers Optical Group as their tax manager
and during her time with the Group was promoted to Director of Tax and
Treasury and ultimately served as Director of Risk and Government Affairs
until 2020. She has also assumed government roles in Guernsey since 2012,
including as a Non – States member of the Public Accounts Committee and the
Scrutiny Management Committee as well as a panel member for the Financial
Scrutiny Panel, Guernsey Tax Tribunal and the Trade Policy Advisory Panel. She
is British and resident in Guernsey. She was appointed to the Board in 2021.
Krishna Shanmuganathan - appointed 1 June 2022 (aged 49)
Krishna Shanmuganathan is an independent non-executive director of the
Company. He is also an independent non-executive director of abrdn Asia Focus
plc since June 2020 and founded Scylax Partners in 2016, a provider of
specialist advisory services. Prior to Scylax, Krishna was a managing partner
at Hakluyt & Company (Asia), a risk advisory company, having established and
led the Asia Pacific offices of the firm based in Singapore. Krishna has also
held research and analyst roles at Fidelity International and Cambridge
Associates after a successful and varied career in the Foreign & Commonwealth
Office. He holds a number of other non-executive appointments, including being
on the advisory board of Serendipity Capital, chair of the trustees of St Jude
India ChildCare Centres UK and a trustee of Solefield School Educational
Trust. Krishna has Masters degrees from University of Cambridge and University
of London, is British and resident in the United Kingdom. Krishna was
appointed to the board in 2022.
Wendy Dorey - appointed 9 September 2022 (aged 50)
Wendy is an experienced professional in the financial services industry, with
key competencies in business strategy, financial regulation, risk management
and investment marketing and distribution. She is currently a Director of
Dorey Financial Modelling, an investment consulting firm, a Commissioner for
the Guernsey Financial Services Commission, and a Non-Executive Director for
Schroders (CI) Limited and TwentyFour Select Monthly Income Fund Limited.
She has over 25 years’ industry experience working for asset managers,
pension consultants and retail banks in the UK, Guernsey and France. She has
worked for a number of leading asset managers: BNY Mellon, M&G Asset
Management, Friends Ivory & Sime and Robert Fleming/Save & Prosper. She has
also consulted to the Defined Contribution Consulting arm of the Punter
Southall Group and obtained retail banking experience at Lloyds bank and Le
Credit Lyonnais. She is a Fellow of the Institute of Directors and qualified
as a Chartered Director in 2020. She is also currently the Chair of the
Guernsey Branch of the Institute of Directors.
Weiss Asset Management
Weiss Asset Management is an investment management firm headquartered in
Boston, MA and is registered with the U.S. Securities and Exchange Commission
as an investment adviser. In addition to WKOF, WAM manages multiple investment
vehicles, including private hedge funds, an institutional separate account and
an opportunity fund.
The firm was founded by Dr. Andrew Weiss, an academic economist, who launched
his first fund in 1991.
WAM employs deep fundamental and statistical analysis to find undervalued
securities globally and seeks to maximise risk-adjusted returns for its
investor base that includes charitable foundations, pension plans, endowments,
hospitals, government entities and private investors. A portion of WAM’s
profits is donated annually to the Weiss Asset Management Foundation Inc., a
foundation launched internally in response to employees’ interest in
allocating resources globally to alleviate suffering.
WAM has been investing in the Korean market for over 20 years. Over this time,
the firm has built out a dedicated night desk of 6 employees focused on
trading its Asian strategies, as well as strong relationships with a number of
Korean brokers.
The firm has 90+ employees and assets under management of approximately £2.5
billion.
Andrew Weiss
Founder and Chief Executive Officer
Andrew is the Founder and Chief Executive Officer of WAM. Andrew received his
Ph.D. in Economics from Stanford University, was elected a fellow of the
Econometric Society in 1989 and is currently Professor Emeritus of Economics
at Boston University.
Andrew’s academic research interests have included markets with imperfect
information, macroeconomics, development economics, and labour economics. He
ranks in the top 1% of published economists by citations, and his co-authored
paper “Credit Rationing in Markets with Imperfect Information” with Joseph
Stiglitz was prominently featured in the Nobel Prize committee statement for
Stiglitz’s 2001 Nobel Prize Award.
Andrew began his career as an Assistant Professor at Columbia University and
as a Research Economist in the Mathematics Center at Bell Laboratories. He has
lectured at numerous major universities and international organisations and is
the author of numerous articles published in professional journals.
Andrew began managing the predecessor to WAM’s existing domestic hedge fund
in 1991 and founded WAM in 2003. Andrew and WAM’s strategies have been
featured in articles in Forbes, Time, and Outstanding Investor Digest, as well
as newspaper articles in the U.S. and Europe.
Additionally, Andrew is a member of the Advisory Board of the University of
California Center for Effective Global Action, the Advisory Board for the
Center for Development Economics at Williams College and the Council on
Foreign Relations. Andrew and his wife Bonnie are the founders of Child Relief
International, a foundation dedicated to fighting poverty in less developed
countries. Andrew is also a board member of the WAM Foundation, a non-profit
focused on maximising the alleviation of suffering worldwide.
Jack Hsiao
Managing Director
Jack joined WAM in February 2008; he is a Managing Director and a member of
the Investment Committee. Prior to that, Jack interned at WAM from 2006 to
2008 while performing his undergraduate studies. Jack works from Boston and
oversees all strategies in Asia including investments across preference
shares, holding companies, bonds, distressed, value equities and other
instruments. After graduating Valedictorian from his high school, Jack
received his Bachelor degree in Economics from Harvard.
Ethan Lim
Portfolio Manager
Ethan joined WAM in June 2015; he is a Portfolio Manager at the firm and is
primarily responsible for managing the firm’s investments in Korea, while
overseeing the Asia team and other strategies during Asia hours. Prior to
joining Weiss, Ethan interned at Goldman Sachs Seoul office. Ethan graduated
from Seoul National University, where he received a BS in Mechanical and
Aerospace Engineering, a BA in Economics, and completed his Master’s degree
in Financial Engineering at Columbia University.
How to invest in Weiss Korea Opportunity Fund
You can invest in the Fund through the following:
Via the nominated broker
The nominated broker is Singer Capital Markets.
The Board encourages all of its Shareholders to exercise their rights and
notes that many specialist platforms provide shareholders with the ability to
receive company documentation, to vote their shares and to attend general
meetings, at no cost.
Please refer to your investment platform for more details, or visit the
Association of Investment Companies’ (“AIC”) website at
www.theaic.co.uk/aic/shareholder-voting-consumer-platforms for information on
which platforms support these services and how to utilise them.
Through a professional adviser
Professional advisers are usually able to access the products of all the
companies in the market and can help you find an investment that suits your
individual circumstances. An adviser will let you know the fee for their
service before you go ahead.
You can find an adviser at unbiased.co.uk You may also buy investment trusts
through stockbrokers, wealth managers and banks. To familiarise yourself with
the Financial Conduct Authority (“FCA”) adviser charging and commission
rules, visit fca.org.uk.
Shareholder Information
AIFMD Disclosures
The Company's Alternative Investment Fund Manager is Weiss Asset Management LP
(the "AIFM").
Under the Alternative Investment Fund Managers Regulations 2013 (the “UK
AIFM Regulations”) and the FCA’s Investment Funds sourcebook (“FUND”),
the Company is a non-UK Alternative Investment Fund (“AIF”) and the AIFM
is an “above-threshold non-UK AIFM”.
Accordingly, the AIFM has obligations pursuant to the UK AIFM Regulations and
FUND to make certain disclosures to investors before they invest in the
Company. These are set out in the AIFM’s Supplemental Disclosure to the
Admission Document dated May 2013 which can be found on the Company’s
website www.weisskoreaopportunityfund.com. The AIFM confirms that, apart from
changes to the latest net asset value of the Company, there have been no
material changes to this information in the year ended 31 December 2022.
The AIFM is also required to make certain disclosures as to the remuneration
it pays to its employees. The portion of the total amount of remuneration paid
by the AIFM to its 75 employees attributable to the Company for the financial
year ended 31 December 2022 was £2,075,355, consisting of £204,425 fixed and
£1,870,930 variable remuneration.
The aggregate amount of remuneration for the 10 employees and/or members
constituting senior management and those employees whose actions have a
material impact on the risk profile of the Company was £1,737,727.
Realisation Opportunity
In accordance with the Company’s Articles of Incorporation and its Admission
Document, the Company shall offer all Shareholders the right to elect to
realise some or all of the value of their Ordinary Shares (the “Realisation
Opportunity”), less applicable costs and expenses, on or prior to the fourth
anniversary of Company’s admission to AIM and, unless it has already been
determined that the Company be wound-up, every two years thereafter (the
“Realisation Date”). See Note 18 for further details.
On 13 March 2023, the Company announced that pursuant to the Realisation
Opportunity, Shareholders who are on the register as at the record date may
elect, during the Election Period, to redesignate all or part of their
Ordinary Shares as Realisation Shares (provided that any part is rounded up to
the nearest whole Ordinary Share). The Election Period commenced on 12 April
2023 and closes on 5 May 2023 at 1pm BST.
Subject to the aggregate NAV of the continuing Ordinary Shares at the close of
business on the last Business Day before the Realisation Date being not less
than £50 million, the Ordinary Shares held by the Shareholders who have
elected for Realisation will be designated as Realisation Shares and the
Portfolio will be split into two separate and distinct Pools, namely the
Continuation Pool (comprising the assets attributable to the continuing
Ordinary Shares) and the Realisation Pool (comprising the assets attributable
to the Realisation Shares). If one or more Realisation Elections are duly made
and the NAV of the continuing Ordinary Shares at the close of business on the
last Business Day before the Realisation Date is less than £50 million, the
Directors may propose an ordinary resolution for the winding up of the Company
and may pursue a liquidation of the Company instead of splitting the Portfolio
into the Continuation Pool and the Realisation Pool.
Share buybacks
In addition to the Realisation Opportunity, the Company has authority to
repurchase on the open market up to 40% of its outstanding Ordinary Shares.
During the year ended 31 December 2022, the Company purchased Nil shares
(2021: 600,000) of its own Shares at a consideration of £Nil (31 December
2021: £1,719,433) under its general buyback authority. For additional
information on Share Buybacks refer to Note 18
Net Asset Value
Northern Trust International Fund Administration Services (Guernsey) Limited
(the “Administrator”) is responsible for calculating the Net Asset Value
(“NAV”) per Share of the Company. Since 4 April 2022, the unaudited NAV
per Ordinary Share is calculated on a daily basis and at the month end by the
Administrator, and is announced by a
Regulatory News Service and is available through the Company’s website
www.weisskoreaopportunityfund.com.
Corporate Information
Directors (Non-Executive) Norman Crighton (Chair) Robert King (resigned 30 September 2022) Gillian Morris Krishna Shanmuganathan (appointed 1 June 2022) Wendy Dorey (appointed 9 September 2022) Company Secretary, Administrator and Designated Manager Northern Trust International Fund Administration Services (Guernsey) Limited PO Box 255 Trafalgar Court Les Banques St. Peter Port Guernsey GY1 3QL
Registered Office PO Box 255 Trafalgar Court Les Banques St. Peter Port Guernsey GY1 3QL Financial Adviser, Nominated Adviser and Broker Singer Capital Markets 1 Bartholomew Lane London EC2N 2AX
Investment Manager and AIFM Weiss Asset Management LP 222 Berkeley Street, 16th Floor Boston, MA 02116 USA Guernsey Legal Adviser to the Company Mourant Ozannes (Guernsey) LLP Royal Chambers St. Julian's Avenue St. Peter Port Guernsey GY1 4HP
English Legal Adviser to the Company Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH R egistrar Link Market Services (Guernsey) Limited Mont Crevelt House Bulwer Avenue St. Sampson Guernsey GY2 4LH
Custodian and Principal Bankers Northern Trust (Guernsey) Limited PO Box 71 Trafalgar Court Les Banques St. Peter Port Guernsey GY1 3DA Independent Auditor KPMG Channel Islands Limited Glategny Court Glategny Esplanade St. Peter Port Guernsey GY1 1WR
Endnotes and Alternative Performance Measures
(1,2,3) The NAV published in this annual report and audited financial
statement will include dividends receivable as part of the NAV. Please refer
to the Admission Document for more information regarding the announcement and
payment of Korean dividends.
(4,7) For WKOF, this return includes all dividends paid to WKOF’s
Shareholders and assumes that these dividends were reinvested in WKOF’s
Shares at the next date for which WKOF reports a NAV, at the NAV for that
date. MSCI total return indices are calculated as if any dividends paid by
constituents are reinvested at their respective closing prices on the ex date
of the distribution. iShares MSCI Korea UCITS ETF also assumes reinvestment of
dividends.
(5) Since inception of Weiss Korea Opportunity Fund on 14 May 2013. The WKOF
return since inception is calculated on the basis of the Net Asset Value per
Ordinary Share and not on the price of WKOF shares on AIM. The value of WKOF
NAV per share performance since inception represents a total return, inclusive
of all dividends paid to WKOF shareholders since inception. The NAV per share
may differ from the price at which shares of WKOF may be purchased or sold on
AIM, and performance of NAV per share during any specific period may therefore
not be reflective of the returns an investor would receive by investing in
shares of WKOF during such period. For WKOF, this return includes all
dividends paid to WKOF’s Shareholders and assumes that these dividends were
reinvested in WKOF’s Shares at the next date for which WKOF reports a NAV,
at the NAV for that date.
(6,7) MSCI Korea 25/50 Net Total Return Index denominated in GBP. MSCI total
return indices are calculated as if any dividends paid by constituents are
reinvested at their respective closing prices on the ex-date of the
distribution.
(8) If the share price of an investment company is lower than the NAV per
share, the shares are said to be trading at a discount. The size of the
discount is calculated by subtracting the share price from the NAV per share
and is usually expressed as a percentage of the NAV per share. If the share
price is higher than the NAV per share, the shares are said to be trading at a
premium.
(9) Calculated as the dividend per share over the last 12 months divided by
the share price as of the date of this report.
(10) The Average Trailing 12-Month P/E Ratio of Preference Shares Held is
based on the consolidated diluted earnings per share over the trailing
12-month period as reported by Bloomberg, and is calculated as the total
market value of WKOF’s preference share portfolio on the report date divided
by the total earnings allocable to WKOF based on WKOF’s holdings on the
report date. Investments with negative reported earnings are excluded.
(11) P/B Ratio of Preference Shares Held is calculated as the weighted average
price to book ratio of all preference shares held at 31 December 2022.
(12) The annualised total expense ratio includes charges paid to the
Investment Manager and other expenses divided by the average NAV for the year.
See Note 10 for details of such expenses.
(13) Bloomberg L.P. (2022). Bloomberg Innovation Scores since 2013. Retrieved
from Bloomberg terminal.
( 1 4) WIPO IP Facts and Figures 2021. (n.d.). World Intellectual Property
Organization.
( 1 5) Most recent sovereign credit ratings from Moody’s, S&P, and Fitch as
of 31 December 2022.
( 1 6) Leading export countries worldwide in 2021. (n.d.). Statista.
( 1 7) GDP, current prices. (2022). International Monetary Fund.
( 1 8)Doing Business 2020. (2020). World Bank.
( 1 9) PISA 2018 Insights and Interpretations. (n.d.). Organisation for
Economic Co-operation and Development.
(20) Bloomberg L.P. Weiss Asset Management LP Data retrieved as of 29 December
2022.
(2 1 ) Activist Targets. (2022). Activist Insight.
(22) Bloomberg LP. Data as of 31 December 2022.
(23) Market capitalisation of the leading chemical companies worldwide in
March 2023. (2022). Statista.
(24) Global EV battery usage in 2022 is 517.9GWh, up 71.8% from the previous
year. (2023). SNE Research.
(25) About Us. (2022). LG Chem.
(26) Market share of the top six car manufacturers in South Korea in 2022,
based on sales volume. (2023). Statista.
(27) Hyundai Motor Reports 2022 Global Sales and 2023 Goals. (2023). Hyundai.
(28 ) Brands. (n.d.). AmorePacific Group.
(29) Brands. (n.d.). CJ Cheijedang.
(30) Subsidiaries Info. (n.d.). Hanwha Corporation.
(31) Samsung maintains No.1 position in global TV market. (2023). The Korea
Economic Daily.
(32) Global Business. (n.d.). Mirae Asset Securities
(33) Company. (n.d.). LG H&H.
(34) Our Business. (n.d.). SK Chemicals.
(35) Technology and Products. (n.d.). Doosan Fuel Cell
(36) This return includes all dividends paid to the Company’s Shareholders
and assumes that these dividends were reinvested in the Company’s Shares at
the next date for which the Company reports a NAV, at the NAV for that date.
(37) MSCI total return indices are calculated as if any dividends paid by
constituents are reinvested at their respective closing prices on the ex-date
of the distribution.
(38) On 31 December 2022 the Company had 69,307,078 shares outstanding.
(39) This return includes all dividends paid to WKOF’s Shareholders and
assumes that these dividends were reinvested in WKOF’s Shares at the next
date for which WKOF reports a NAV, at the NAV for that date.
(40) MSCI Korea 25/50 Net Total Return Index denominated in GBP. MSCI total
return indices are calculated as if any dividends paid by constituents are
reinvested at their respective closing prices on the ex-date of the
distribution.
(41) Bloomberg L.P. and Weiss Asset Management LP; Data as of 31 December
2022.
(42) Bloomberg L.P. Data as of 31 December 2022.
(43 ) Market Data System. (n.d.). Korea Exchange.
(44) Consumer Price Index in December 2022. Statistics Korea.
(45) Bloomberg L.P. Data as of 31 December 2022.
(46) The Bank of Korea Base Rate. (2023). Bank of Korea.
(47) Bloomberg L.P. Data as of 31 December 2022.
(48) S. Korea to report best ever exports performance this year: trade
ministry. (2022). Yonhap News Agency.
(49) Bloomberg L.P. Data as of 29 December 2022.
(50) Weiss Asset Management LP. Data as of 31 December 2022.
(51) HMC’s first preference shares traded at a 55% discount relative to its
common shares as of December 31, 2021, as compared to its 3-year historical
average discount of 46% prior to 2020.
(52) The estimated value of LG Chem’s assets includes the market value of
publicly traded subsidiaries and estimated values of private subsidiaries.
(53) If voting rights were important determinants of the price of securities,
due to LG Chem’s control over its publicly traded securities one would
expect the common shares of LG Chem to trade at a premium to the value of its
underlying holdings in its publicly traded subsidiaries, not at a discount as
is the case.
(54) LG to buy back $398 mm of its own shares. (2022). The Korea Economic
Daily.
(55) SK’s investment arm to buy back shares worth W200b. (2022). The Korea
Herald.
(56) Number of Companies publicly subjected to activist demands by HQ and time
period. (2022). Activist Insight.
(57 ) Activist fund wins over K-pop pioneer at SM Entertainment annual
meeting. (2022). The Korea Economic Daily.
(58) South Korea plans reforms to tackle ‘Korea discount’ for its stocks.
(2022). Reuters.
(59) Converted into GBP from USD using the prevailing currency exchange spot
rate as of 31 December 2022.
(60) Bloomberg L.P. and Weiss Asset Management LP. Data as of 29 December
2022.
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