Weiss Korea Opportunity Fund: Finding Value In SK Prefs

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Norman Crighton, Chairman of Weiss Korea Opportunity Fund Ltd (LON:WKOF) reviews the first annual report of the company.

For some background see Whitney Tilson’s excellent analysis of value in Korean Prefs

Weiss Korea Opportunity Fund First Annual Report Review

Dear Shareholders,

It is a pleasure to provide the first Annual Report of the Company.

During the period from listing on 14 May 2013 to 31 December 2013 (the “Period”), the Company’s NAV per share increased from 98.00 pence to 108.46 pence, outperforming the reference MSCI Korea 25/50 Capped Index, while the Company’s share price consistently maintained a premium to NAV. A detailed report from the Investment Manager follows on pages 5 to 9.

We believe that South Korean preferred shares and Weiss Korea Opportunity Fund Ltd (LON:WKOF) continue to represent an outstanding investment opportunity. The Korean stock market itself is relatively inexpensive. Korean preferred shares offer access to substantially the same economic rights as the corresponding common shares of many of the leading Korean companies, but at much lower prices, thus offering investors the potential for exceptional gains. Foreign investors may not be able to hold Korean securities directly and, as a dedicated access vehicle for Korean preferred shares, Weiss Korea Opportunity Fund is unique.

Weiss Korea Opportunity Fund Ltd (LON:WKOF) is also unusual among closed-ended funds in the strong corporate governance features written into the Articles of the Company at inception. Few closed-ended funds have such comprehensive protection. We believe that partially as a result of that, many other closed-ended funds persistently trade at large discounts, while ignoring the potential per-share value accretion available through share repurchases. Weiss Korea Opportunity Fund Shareholders may elect to redeem their investment on the Company’s fourth anniversary and on every second anniversary thereafter. In the event that the discounts on the Korean preferred shares, which Weiss Korea Opportunity Fund owns, narrow considerably relative to their corresponding common shares, the Board must submit a proposal to Shareholders to wind-down the Company. These medium-term liquidity events create a number of possible favourable exit opportunities for investors. We believe that these measures, combined with our strong commitment to adding value through share repurchases, will help maximize share value for investors. Additionally, the President and CIO of the Investment Manager has invested significant personal funds in Weiss Korea Opportunity Fund, and Directors have also purchased shares at the initial public offering (“IPO”) in order to align their interests with those of Shareholders. In order to meet the highest standards of corporate governance, the Directors have agreed to stand for election yearly.

As stated in the Admission Document, the Directors intend to return to Shareholders all dividends received, net of withholding tax, on an annual basis. As the Company did not become fully invested until well after the “dividend season” in Korea, the amount collected by the Company in 2013 was de minimis at less than £20,000 in total. In order to pay out to Shareholders dividends due to them in a timely manner, the Board has decided that the first dividend will be paid early summer 2014 and annually thereafter. This will allow all dividends from the previous financial year of Korean companies (calendar year 2013) to be paid out as soon as practicable after the Company receives them.

As also stated in the Admission Document, since its inception, the Company has not engaged in hedging activities or made use of leverage to fund investments, but the Company reserves the right to do so in the future.

We will be holding our Annual General Meeting (“AGM”) on 28 July 2014, notices will be sent out with the Financial Statements. I warmly invite all Shareholders to attend, and look forward to meeting you. If you are unable to attend in person, the Board is always happy to answer questions or to meet with Shareholders directly if required. Please contact the Company at the address given on page 2 of this document.

Finally, I would like to thank Shareholders for their support through a successful initial period and look forward to the continued success of the Company in the future. I would also like to thank Weiss Asset Management for steering the Company through the difficult initial investment phase, as well as the other service providers, all of whom have contributed greatly to the Company.


Norman Crighton

23 April 2014

See full Weiss Korea Opportunity Fund First Annual Report in PDF format here.

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