One early morning.
As Director Oh was reviewing the status of each team’s returns, his gaze stopped on one document.
It had truly been a month of chaos.
High interest rates out of the United States, real estate troubles out of China... As the saying goes, a heart once startled by a soft-shelled turtle will jump at the sight of a pot lid. The Fed announced that the U.S. economy was doing well, but the Nasdaq took it as a signal of recession and plunged endlessly.
Fortunately, there had been no reason for it. The real economy was sound, Big Tech had delivered earnings surprises, and U.S. inflation was coming under control. And so the stock prices that had collapsed as if the Great Depression had broken out found their way back to where they belonged in just a month.
“Hm...”
After looking over each team’s investment returns for a while, Director Oh picked up the internal phone.
—Yeah, Manager Lee, it’s me. Come up to my office for a bit.
After calling Sejun that way, Director Oh buried his head in the documents again.
I can’t figure him out. I can’t understand what this guy is thinking at all...
“You called for me, Director?”
“Yeah, have a seat.”
“Yes. What’s the matter?”
“What matter? I called you to have a cup of coffee. Ah, you said you were going on a business trip today?”
“Yes. I heard KD Techwin is holding its general shareholders’ meeting, so I thought I’d attend.”
“Then you’ll be going up to Seoul? Take a KTX first-class seat on the way. You’ve earned it.”
For some reason in a good mood, Director Oh even cracked a joke as he brewed the coffee.
“I really do have an eye for people, don’t I?”
“Pardon?”
“A 20% return in one month... Good grief. Our Manager Lee achieved in one month the average return our pension fund makes over three years. It was worth strongly recommending you to the division head.”
“Ah, yes. Thank you. Haha...”
“What’s your secret? Let me in on it too.”
“Rather than a secret... they suddenly started selling cheap, so I just picked them up.”
Sejun answered playfully, but Director Oh did not let it pass lightly.
“So I’m asking what your secret was for knowing whether it was cheap or not.”
“...Pardon?”
“When the market crashed hard on the 17th and 20th, even a circuit breaker was triggered on the KOSPI. Looking at the trading volume, even the so-called top institutions couldn’t withstand the panic-selling sentiment and dumped everything. But you, on the other hand, swept it all up.”
In truth, the plunge that day had been no ordinary matter.
A sidecar had been triggered in the market, but it failed to stop the decline, and a circuit breaker was activated. Even so, the market remained so chaotic that the government was considering an early close. In the face of that enormous panic-selling sentiment, foreigners and institutions alike stopped making rational judgments and hammered the sell button in panic.
But Lee Sejun picked everything up that day.
“Actually... there wasn’t really any reason. If anything, I bought because there was no reason.”
“What?”
“Real economic indicators, sales announcements, CPI... not one of them showed anything wrong, but the market took it as a signal of recession. But no matter how I looked at it, it was a groundless collapse.”
“Well, now I feel embarrassed for asking. To be honest, on the day the circuit breaker went off, even our overseas team couldn’t overcome the panic-selling sentiment and disposed of 10% of their assets. If you had stayed on the overseas team, we might have saved hundreds of billions of won. Maybe I shouldn’t have let you go independent.”
“Haha...”
Director Oh, who had been smiling with satisfaction, took a sip of coffee and then his expression changed.
“But listen, Manager Lee.”
“Yes.”
“Why did you dispose of the blue-chip stocks you were lucky enough to sweep up that day and recently start buying defense stocks? I looked at the portfolio that came up today, and your defense stock holdings have increased by 20%.”
“Director, that’s...”
“Let me say this first. Stop. We discussed it enough at the risk management meeting, didn’t we? Defense stocks have no prospects.”
Director Oh spoke as if trying to persuade him.
“I’m saying this because it’s a shame. On the day the circuit breaker went off, you were probably the only one in the pension fund who took a buy position.”
“...”
“No, you achieved three years’ worth of the pension fund’s returns in a single month, so why suddenly invest in something completely off the wall? Your investment performance has been steadily falling as you’ve been sweeping up defense stocks lately.”
He was genuinely worried.
Since the day the circuit breaker was triggered, Korea’s blue-chip companies had mostly recovered their stock prices, but defense stocks had continued to fall even after that.
With countries groaning under austerity and Europe even moving toward disarmament, the fact that there was no hope in the defense industry was obvious enough for even amateur retail investors who dabbled in stocks to know.
“...They’re still dirt cheap. I’m thinking of increasing the purchase ratio by another 20%.”
“What? Hey, you really think tens of thousands of K-9s are going to sell? Even if you sold them to Somali rebels, that volume would never move! Proprietary self-propelled howitzer technology? The shells loaded into those things cost hundreds of millions per round. What country would invest in that in this climate? There’s absolutely no basis for it.”
“Director, then was there any basis for the circuit breaker?”
“...That was just a natural disaster.”
“There have always been natural disasters in the international community as well. And every time, what rises is defense.”
Director Oh pressed his fingers to his temples.
In any case, one should not have long conversations with this guy. With his recent investment performance improving thanks to the circuit breaker turmoil, he was overflowing with confidence too.
“An additional 20% purchase of defense stocks? Where exactly are you going to invest that money now?”
“KD Techwin is apparently applying for an IPO after this split-off. So I’m thinking of going today and reaching an agreement on a block deal.”
“Hey, because of the recent amendment to the Commercial Act, there are loud voices opposing that. Shareholders are already furious, and you’re saying the pension fund will take all that volume?”
“I don’t really know about the political reasons. But I see prospects in that defense sector.”
Director Oh sighed.
By now, he could tell just by looking at the guy’s eyes. Whether he was in a state where he could be stopped or not.
“...Fine. Do it.”
“Really? Thank you!”
“But let’s make one promise. If it drops below a certain point, you stop buying defense stocks too. What sense does investing in tanks make in the age of electric vehicles? If you don’t promise me that, I can’t yield either.”
“...Understood. If it falls more than another 15%, I’ll give up too.”
Having obtained permission, Sejun bowed his head and left the director’s office.
Director Oh muttered to himself.
“If he just stayed still, first place in investment performance for the year would be as good as his... Honestly. Of all the things to get fixated on, he had to latch on to something weird.”
*
KD Group, Korea’s top defense company.
With a market capitalization ranking around tenth in the country, the company had recently achieved proprietary self-propelled howitzer technology and even exports, inspiring patriotism in many citizens.
[We are the shield of the fatherland.]
Vice Chairman Nam Sanggi looked at the company motto hanging in the middle of his office, then put a cigarette in his mouth.
He was extremely tense today. His father, the honorary chairman, had recently suffered a rapid decline in health, so it was about time to prepare for inheritance.
But because there happened to be three brothers, he was engaged in a war of nerves with his younger brothers over the most profitable affiliates, and on top of that, the National Tax Service was prowling around nearby, putting him in a foul mood.
“Vice Chairman. Everything has been settled.”
As he was soothing his bitter heart, his secretary came bearing good news.
“How did it go?”
“A complete success. The split-off has been almost entirely approved, and now, once you take the position of CEO of Techwin, the succession of management control will be complete.”
“I don’t like the phrase ‘almost entirely.’ Either it has been approved or it hasn’t. What do you mean, almost entirely?”
“Ah, yes. We didn’t secure a majority stake, but 10% of the shares belong to the pension fund anyway. Our side is ahead of the opposition to the split-off by about 7%.”
Did he like the answer?
Vice Chairman Nam smiled and asked,
“Good. Then as long as we hold 51% of KD Techwin, we can control all the affiliates, correct?”
“Yes. On top of that, since the recent announcement of the split-off, the stock price has continued to fall. According to our estimates, this split-off is expected to reduce inheritance taxes by at least one trillion won. However...”
“However?”
“...Public opinion is not good due to its overlap with the recent Commercial Act amendment. It seems the side opposing the split has even hired professional shareholder-meeting agitators today to oppose our decision-making.”
Nam Sanggi’s expression twisted.
“In any case, Korea is such a difficult country to run a business in. It already kills me to hand over affiliates to my younger brothers, and now I’m supposed to give to the National Tax Service too? Damn it! Is the National Tax Service some illegitimate child of my father’s?!”
“...”
“We developed proprietary self-propelled howitzer technology! We turned this country into one that exports weapons for the first time in seventy years! We inspired patriotism! If we’ve done this much, shouldn’t they at least give us a discount on inheritance tax?”
A split-off... It truly was a wonderful thing.
For KD Group, which had various affiliates in insurance, resorts, defense, and so on, it allowed the companies to become independent and develop specialization. Since new companies were being established, they could also attract large-scale investment funds. The majority stake in each affiliate would be given to the parent company, and as long as the owner held only the majority stake in that parent company, there would be no threat to management control.
It was truly something with not a single drawback, only advantages.
And yet, for some unknown reason, the United States did not use this wonderful system.
If they listed Apple Phone by component and split Goggle into WebTube, WebTube Music, AlphaGo, and so on, they could smoothly pass management control on to the second generation. Why did they instead modestly establish things like the Rockefeller Foundation and pay the water bills of New Yorkers?
Were they more foolish than they looked?
“...Vice Chairman, please calm down. Even so, our friendly stake is 7% higher than the opposition’s. We also have big news such as development and export prospects, so no one will doubt your leadership.”
“How is the IPO schedule going?”
“Yes. After officially deciding on the split-off at today’s general shareholders’ meeting, we plan to proceed with the IPO immediately. Since we need to hold the majority, we are thinking the amount we can offer as public shares will be around two trillion won.”
Nam Sanggi gave a bitter smile.
Separate from management control, the outlook for defense stocks had recently become far too dark. The same was true for leading American defense companies.
American defense stocks, which had peaked during 9/11 and the Iraq War, fell helplessly once the withdrawal from Afghanistan was decided, and to make matters worse, COVID piled on as well, leaving them hitting bottom day after day.
But if one asked about the future, it was even bleaker.
With countries turning toward austerity and Europe leading disarmament, there was not a single person who would say the future of defense stocks was bright.
Thus, although KD Group’s most valuable affiliate was being prepared for listing, the majority opinion was that its market capitalization would be around five trillion won.
“What’s the outlook from the lead managers? We prepared this ambitiously, but if the public offering gets undersubscribed, I’ll be in quite a difficult position.”
“That won’t happen. Even so, several institutions have expressed intent to purchase in the tens of billions of won. If we conclude block deals and list it on the market, about one trillion? With that much volume, the subscription competition rate should be quite high as well.”
“Good, Director Kim. From now on, there must be no setbacks in this plan of ours. We are the shield of the fatherland. If my management control is put in danger, then the outlook for Korea’s defense industry will darken as well.”
“Of course!”
“Today’s shareholders’ meeting will be a place for retail investors to vent their anger anyway, so I’ll attend around the middle. I told Executive Director Park as much. Contact me when the shareholder-meeting agitators’ protest is over.”
“Understood.”
Just as everything was coming to a smooth conclusion, Executive Director Park, who was in charge of today’s shareholders’ meeting, burst through the door.
“V-Vice Chairman, we have a serious problem!”
“What is it?”
“A representative from the pension fund suddenly attended the meeting.”
The vice chairman shot to his feet.
“Who came? No, why?!”
“I’m not sure of the reason, but... in any case, the person in charge from that side is definitely present. I think you will have to come to the shareholders’ meeting.”