Weiss Korea Opportunity Fund - Annual Report and Audited Financial Statements for the Year Ended 31 December 2024

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 2024

 

Weiss Korea Opportunity Fund Ltd. (the “Company”) has today released its Annual Financial Report for the year ended 31 December 2024. The Report will shortly be available for inspection via the Company's website www.weisskoreaopportunityfund.com.

 

FOR THE YEAR ENDED 31 DECEMBER 2024
 

 

*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 12 May 2025, the latest published NAV per Share was £1.57 and the Share Price was £1.38.

 

Chair’s Review

For the year ended 31 December 2024

Investment Performance

During the period from 1 January 2024 to 31 December 2024, WKOF’s NAV in pounds Sterling (“GBP”) decreased by 15.9%, including reinvested dividends, out-performing the reference MSCI South Korea 25/50 Net Total Return Index (the “Korea Index”) by 2.6%. Since the admission of WKOF to AIM in May 2013, NAV has increased by 81.1%, including reinvested dividends, compared to the Korea Index returns of 41.2%, a cumulative outperformance of 39.9% since inception.

 

Dividend

The Directors declared an interim dividend yield of 5.1851 pence per share in May 2024, to distribute the income received by WKOF in respect of the year ended 31 December 2023. This equates to a 3.8% net dividend yield over the past 12 months. The dividend was paid to all Shareholders on 24 June 2024.

In line with the previous financial year, the Board intends to take into account all dividends received up to, and  including, 30 April 2025 when declaring the Company’s own dividend.

 

Strategic Review

At the beginning of November 2024, the Board was notified by its investment manager that it believed the opportunity set and strategy for the fund continuing in its current form was less attractive than it had been in the past, including at the Company’s inception in 2013. Moreover, it did not think that circumstances were likely to improve in the foreseeable future. As a result, the Board announced a strategic review on 4 November 2024.

 

The Board assessed a number of proposals, including a change of investment mandate and/or a potential combination of WKOF’s assets with another suitable investment company or fund, as an alternative to a Managed Wind-down. The Board confirms that the short-listed proposals were thoroughly assessed and meetings were held with interested parties in late January 2025, with further detailed discussions continuing with one preferred party through February 2025. However, due to the complexities associated with the short-listed proposals that came to light in the detailed discussions, combined with the differing views received from shareholders, on 27 February 2025, the Board announced the decision that a Managed Wind-down was the fairest proposal and would be in the best interests of shareholders as a whole.

 

Managed Wind-down

On 19 March 2025, a Circular was sent to all Shareholders setting out the details of the proposed Managed Wind-down, explaining the new investment objective and policy (in place of the existing investment objective and policy) to reflect the realisation strategy, the Company ceasing to make new investments during the realisation period and the adoption of the new Articles to permit the Directors to return capital to Shareholders pursuant to the Managed Wind-down by way of compulsory redemptions of Shares to facilitate the implementation of the Managed Wind-down.

Shareholders overwhelmingly approved the Managed Wind-down at an Extraordinary General Meeting on 14 April 2025.

During the Managed Wind-down process, the Company will be managed with the intention of realising all of the assets in its portfolio in an orderly manner that aims to achieve a balance between seeking to obtain the best achievable value for those assets and making timely returns of capital to Shareholders. Returns of capital to shareholders will be made by way of compulsory redemptions of shares and are anticipated to be made as, and when, sufficient cash is realised to make it economically expedient to do so. The first return of capital is expected to be made by the end of June 2025.

The Board intends to maintain the trading of Shares on the AIM for as long as the Directors believe it to be practicable during the Managed Wind-down, subject to the ability of the Company to continue to comply with its obligations under the AIM Rules.

 

The Board considers that the inclusion of a viability statement in the Financial Statements would not provide additional benefit to the Company’s stakeholders given that the Company has entered a Managed Wind-down which aligns with the UK Corporate Governance Code.

 

Share buybacks

The Board is also authorised to repurchase up to 40% of WKOF’s outstanding Ordinary Shares in issue as of 31 December 2024. Whilst historically the Company has bought back shares where the share price discount to net asset value per share has reached high single digit percentages (with 12.6% of Shares issued at admission having been repurchased to date), and remains authorised to do so in its discretion, looking forward the Board does not anticipate buying back shares given the Company is now in Managed Wind-down and will be regularly returning capital to shareholders by way of a compulsory redemption of Shares.

 

Krishna Shanmuganathan

Chair

 

14 May 2025

 

Investment Manager’s Report

For the year ended 31 December 2024

 

Managed Wind-down of the Fund

In November 2024, we notified WKOF’s Board of Directors that we believed that the opportunity set and strategy for the fund continuing in its current form was less attractive than it has been in the past, including at WKOF’s inception in 2013, and that we did not think this change in circumstances was likely to improve in the foreseeable future. Our assessment was based on a number of factors:

• Several large and more liquid preference shares have had their discounts narrow to the point where they are no longer attractive investments for the fund. Consequently, the pool of more liquid preference shares available for investment has decreased.
• South Korea's continued efforts to open its financial markets to foreign investors mean that the fund's holdings can now be replicated in more cost-effective ways than through the fund itself.
• It was felt that given the above and the performance over the least 2 years, more shareholders would be likely to consider taking up the next realisation opportunity. If this were to happen, the overhead cost per share to investors would increase.

 

As discussed in the Chair’s Review of this Annual Report, the Board subsequently commenced a strategic review to consider the future of the Company and explore the strategic options available, including a change of investment mandate and/or a potential combination of the Company’s assets with another suitable investment company or fund. The shortlisted proposals were thoroughly assessed and meetings were held with interested parties in late January 2025, with further detailed discussions continuing with one preferred party through February 2025. However, due to the complexities associated with the shortlisted proposals that came to light in the detailed discussions, combined with differing views of Shareholders, the Board reached the decision that a Managed Wind-down was the fairest proposal and would be in the best interests of the Company and its Shareholders as a whole.

 

WKOF Performance Attribution

At the end of December 2024, WKOF held a portfolio of 30 South Korean preference shares. As a reminder, the economic rights of South 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, on a currency-neutral basis, are driven by five primary factors:

• The performance of the Korean equity market generally as indicated by the South Korea Index;
• The discounts of the preference shares WKOF holds narrowing or widening relative to their corresponding common shares;
• The performance of the common shares (which correspond to the preference shares held by WKOF) relative to the performance of the South Korean equity market;
• 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 to 31 December 2024.

 

Performance Attribution Table

 

Macro and Corporate Governance update

In our 2024 Half Yearly Report, we mentioned that investors might gain more clarity on South Korea’s Corporate Value-Up Programme (CVUP) by the end of the year. However, despite some periods of optimism, the CVUP still lacks clarity and effectiveness. A large part of this was due to increased political turmoil in South Korea towards the end of 2024.

 

President Yoon declared martial law, which was later revoked, leading to two impeachment proceedings. After President Yoon was impeached, the National Assembly also sought to impeach acting President and former Prime Minister Duck-soo Han for his role in the martial law order and his lack of cooperation during the impeachment process; however, he has since been reinstated.

 

This political instability has temporarily hindered the government's ability to function effectively and damaged the nation’s international reputation. The economic impact is already being felt in South Korea's heavily export-oriented economy. Most notably, the South Korean won has depreciated significantly against the U.S. dollar, prompting the National Pension Service to implement a “strategic currency hedging” practice using up to 48.2 billion U.S. dollars in foreign currency reserves. Additionally, there were net foreign outflows of 9.7 billion USD from the South Korean stock market in the fourth quarter. In December alone, during the brief declaration of martial law and the ensuing impeachment process, foreign investors sold 3.86 billion USD worth of South Korean securities, marking the largest monthly foreign outflow since March 2020. Furthermore, although acting President Choi has publicly supported the Corporate Value-Up Programme, it remains unclear how committed the post-Yoon South Korean government is to corporate governance reforms.

 

The “Korea Value-Up Index” is considered one of the three main components of the Corporate Value-Up Programme (CVUP). According to the Korea Exchange (KRX), this index is designed to highlight local companies that follow best practices in corporate governance and take steps to enhance shareholder value. Some investors consider the development of this index encouraging, especially if the National Pension Service (NPS), South Korea's largest pension fund, decide to use it as a long-term benchmark.

 

However, when the KRX launched the Value-Up Index on September 25, which included 100 listed companies from the KOSPI and KOSDAQ, it was criticised for being an underwhelming selection with inconsistent standards. In response, the KRX announced plans to actively reconsider the standards used for selecting companies in the index.

 

One potentially positive development in corporate governance this year is that lawmakers have voted to expand the fiduciary duties of corporate boards to include responsibilities to shareholders, not just the company. The National Assembly, controlled by the opposition, passed a bill to amend the commercial code, but it faces possible veto by Acting President Choi Sang-mok. Proponents argue that the reform will restore market confidence and align corporate actions with shareholder interests. Opponents, including the ruling party and business groups, believe the change will lead to an increase in shareholder lawsuits and negatively impact the national economy.

 

Finally, protectionist trade policies under the Trump administration pose significant risks to the profitability of South Korea’s leading companies. The U.S. government raised concerns about trade imbalances with countries including South Korea and announced its intention to use tariffs to address them. Duties were imposed on steel and aluminium—directly affecting manufacturers such as POSCO (currently not a WKOF holding). Separately, broader “reciprocal” tariffs of 25% on South Korea were announced in April before being reduced to 10% temporarily. Given South Korea’s economic reliance on large conglomerates (“chaebols”), these trade actions could have ripple effects across the broader economy. The complex network of subsidiaries and supply chains within chaebols means that tariffs on one part of the group can indirectly impact the entire organisation.

 

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 we believe would generate high returns if Korea experienced geopolitical disaster, and do not introduce material new risks into the portfolio. 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 table below provides details about the hedges as of 31 December 2024. Note that outside of the general market and portfolio hedges described herein, WKOF has generally not hedged interest rates or currencies. Please also note that WKOF's exposure to these hedging instruments will gradually reduce as the Managed Wind-down progresses.

 

 

Concluding Remarks

Thank you to our long-term shareholders. We are proud of WKOF’s performance during the nearly 12 years the Company has been listed on AIM, during which we have continually sought to do what is in the best interest of shareholders. For the reasons outlined above, we believe the Managed Wind-down is in the best interest of shareholders, and will seek to manage the portfolio accordingly.

 

Weiss Asset Management LP

 

14 May 2025

 

Statement of Financial Position

As at 31 December 2024

 

The Financial Statements were approved and authorised for issue by the Board of Directors on 14 May 2025.

 

Krishna Shanmuganathan   Gill Morris

Chair      Director

 

Statement of Comprehensive Income

For the year ended 31 December 2024

 

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.

 

Statement of Changes in Equity

For the year ended 31 December 2024

 

 

 

Statement of Cash Flows

For the year ended 31 December 2024

 

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