Now THAT's a title line that always gets a lot of hits.
Regardless, I'm referring to an article that appeared in the Stanford Law Review last year under the full title "Fiduciary Duties for Activist Shareholders," by Iman Anabtawi and Lynn Stout.
The question they raised is: do activist minority shareholders in publicly listed companies have fiduciary obligations? "We believe fiduciary duty doctrine can and should be interpreted in a new way that takes into account changes in the corporate landscape and reaches such opportunistic behavior. Indeed, we believe that the law of fiduciary duty is uniquely suited to address the growing problem that opportunistic shareholder activism poses for corporate governance."
Sounds to me like high-falutin' language for a new tool that will let management entrench itself. Now, if you challenge them, they'll cook up a charge that you aren't a good fiduciary. An ivory-tower idea that could, like many ivory tower ideas before it, do a good deal of harm if unleashed in real world circumstances.
Showing posts with label activist investing. Show all posts
Showing posts with label activist investing. Show all posts
Tuesday, September 1, 2009
Monday, January 19, 2009
Ramius' white paper
Ramius Capital, an activist hedge fund we have had reason to discuss here before, has put out a white paper, "The Case for Activist Strategies."
I read these things so you don't have to.
Here are five key points from the paper:
1) It traces the recent prevalence of activist strategies in part to Eliot Spitzer. Spitzer successfully pushed for certain reforms back when he was New York's attorney general that had the consequence of pushing professional analysts away from the sell side. Unsurprisingly, those analysts have found another lucrative use for their skill set: on the buy side.
2) A crowding-out effect is observable in the empirical data on this strategy. This is a textbook point: if a business plan works often enough to draw emulation, the emulation will reduce the profitability of that plan. Specifically, "the average benchmark adjusted return attributed to hedge fund activism ... declined during the 2001 to 2006 time period."
3) Many activist investors have had negative results in 2008. This is not, Ramius assures us, a defect in the strategy, "the performance of top-tier managers relative to equity indices has been outstanding."
4) Even in the case of not-so-outstanding results, the authors of the white paper don't want us to fault the strategy, because macroeconomic factors and technical pressures "completely overwhelmed fundamentals [last year], causing companies to trade at or below intrinsic value despite the activist manager's otherwise thoughtful plan to unlock value."
5) When allocating capital to an activist investor, it is a good idea to consider that they aren't all the same, and that the best variants of the strategy for the present climate may be those that push primarily for strategic or operational change (rather than financial or governance changes).
I read these things so you don't have to.
Here are five key points from the paper:
1) It traces the recent prevalence of activist strategies in part to Eliot Spitzer. Spitzer successfully pushed for certain reforms back when he was New York's attorney general that had the consequence of pushing professional analysts away from the sell side. Unsurprisingly, those analysts have found another lucrative use for their skill set: on the buy side.
2) A crowding-out effect is observable in the empirical data on this strategy. This is a textbook point: if a business plan works often enough to draw emulation, the emulation will reduce the profitability of that plan. Specifically, "the average benchmark adjusted return attributed to hedge fund activism ... declined during the 2001 to 2006 time period."
3) Many activist investors have had negative results in 2008. This is not, Ramius assures us, a defect in the strategy, "the performance of top-tier managers relative to equity indices has been outstanding."
4) Even in the case of not-so-outstanding results, the authors of the white paper don't want us to fault the strategy, because macroeconomic factors and technical pressures "completely overwhelmed fundamentals [last year], causing companies to trade at or below intrinsic value despite the activist manager's otherwise thoughtful plan to unlock value."
5) When allocating capital to an activist investor, it is a good idea to consider that they aren't all the same, and that the best variants of the strategy for the present climate may be those that push primarily for strategic or operational change (rather than financial or governance changes).
Wednesday, December 24, 2008
That SRZ report
Schulte Roth & Zabel have put out a report on "current trends in activist investing" and what affected parties expect in this area during the year ahead. I linked to it yesterday, but this post will serve as an executive summary.
SRZ commissioned a survey of 25 corporate execs and 25 activist investors. As you might expect, there were points of disagreement between the two groups. "Corporate respondents tend to view activist investors as short-term investors out to make the highest returns possible in the shortest window of time ...." On one specific manifestation of that view, a majority of the execs said that the SEC should not adopt rules that would provide shareholder access to the company's proxy statement. A very considerable majority of the activists said that they do think the SEC should adopt such a rule.
The two sides of the survey differed also on the issue of the amount of activism they expect in 2009. The activists themselves think they'll have a busy year, whereas the corporate types think the recession will temper would-be proxy fights and such.
Only one of the activists surveyed said that litigation is the best approach to produce change in corporate policy [or "4% of the sample" in the language of pollsters -- we're supposed to remember at this point in the report that the sample consisted of 25.] None of the execs identified litigation as an effective strategy.
David Rosewater, a partner at SRZ, summed up the gist of the survey thus: "There is clearly a continuing wide gulf in the views of companies versus activists of the appropriateness of activists' engagement and involvement with the company abouyt its strategy. As a result, it seems likely that contentious contests will continue for the foreseeable future."
We might hope for "peace on earth, good will to men," but too much peace in the board rooms, too much goodwill at the annual meetings of shareholders, would be a bore.
SRZ commissioned a survey of 25 corporate execs and 25 activist investors. As you might expect, there were points of disagreement between the two groups. "Corporate respondents tend to view activist investors as short-term investors out to make the highest returns possible in the shortest window of time ...." On one specific manifestation of that view, a majority of the execs said that the SEC should not adopt rules that would provide shareholder access to the company's proxy statement. A very considerable majority of the activists said that they do think the SEC should adopt such a rule.
The two sides of the survey differed also on the issue of the amount of activism they expect in 2009. The activists themselves think they'll have a busy year, whereas the corporate types think the recession will temper would-be proxy fights and such.
Only one of the activists surveyed said that litigation is the best approach to produce change in corporate policy [or "4% of the sample" in the language of pollsters -- we're supposed to remember at this point in the report that the sample consisted of 25.] None of the execs identified litigation as an effective strategy.
David Rosewater, a partner at SRZ, summed up the gist of the survey thus: "There is clearly a continuing wide gulf in the views of companies versus activists of the appropriateness of activists' engagement and involvement with the company abouyt its strategy. As a result, it seems likely that contentious contests will continue for the foreseeable future."
We might hope for "peace on earth, good will to men," but too much peace in the board rooms, too much goodwill at the annual meetings of shareholders, would be a bore.
Tuesday, September 2, 2008
Institutional Investing
Some heavy wonkish numbers today.
The Conference Board, the non-profit organization best known for putting out the consumer confidence index, has put out a report on institutional investment in US corporations.
It says that over the last two decades institutions have consistently increased their holdings in the largest 1,000 US corporations. Twenty years ago, those corporations were 46.6% institutionally owned. By 2000, the figure was 61.4%. Now, it is up to 76.4%.
Institutional investors include pension funds, hedge or mutual funds, insurance companies, banks and foundations.
Of those variants, that with the most weight to throw around in the US capital markets and corporate suites is: the pension fund. Within that category, state and local pension funds have grown more rapidly than others.
This is important because the state and local funds are more inclined to activism -- and, for that matter, to litigation.
Further, it isn't just the growth of such funds that gives them more weight to throw around. Their internal allocation decisions are moving in the direction of equity. They've increased their share of equity markets from 2.9 percent in 1980 to 10 percent in 2006.
Carolyn Brancato, one of the authors of the report, said in a release: "As the more activist state and local pension funds not only grow in assets but also increase their equity base, they have more stock to vote at annual meetings and in proxy contests."
Meanwhile, in international news ... the U.S. pension funds have historically put very little of their assets into equities outside this country's borders. This amount has grown of late, though. The report says that the largest 25 internationally invested U.S. pension funds now (as of 2007, the latest available figures) allocate 15.3% of their assets that way. It was only 13.5% two years before.
The Conference Board, the non-profit organization best known for putting out the consumer confidence index, has put out a report on institutional investment in US corporations.
It says that over the last two decades institutions have consistently increased their holdings in the largest 1,000 US corporations. Twenty years ago, those corporations were 46.6% institutionally owned. By 2000, the figure was 61.4%. Now, it is up to 76.4%.
Institutional investors include pension funds, hedge or mutual funds, insurance companies, banks and foundations.
Of those variants, that with the most weight to throw around in the US capital markets and corporate suites is: the pension fund. Within that category, state and local pension funds have grown more rapidly than others.
This is important because the state and local funds are more inclined to activism -- and, for that matter, to litigation.
Further, it isn't just the growth of such funds that gives them more weight to throw around. Their internal allocation decisions are moving in the direction of equity. They've increased their share of equity markets from 2.9 percent in 1980 to 10 percent in 2006.
Carolyn Brancato, one of the authors of the report, said in a release: "As the more activist state and local pension funds not only grow in assets but also increase their equity base, they have more stock to vote at annual meetings and in proxy contests."
Meanwhile, in international news ... the U.S. pension funds have historically put very little of their assets into equities outside this country's borders. This amount has grown of late, though. The report says that the largest 25 internationally invested U.S. pension funds now (as of 2007, the latest available figures) allocate 15.3% of their assets that way. It was only 13.5% two years before.
Tuesday, August 5, 2008
Daimler and the locusts
Share prices of the German auto company Daimler have risen more than 4% in recent days, apparently on the strength of rumors that an unspecified hedge fund is building up a position in the company.
The magazine, Focus, citing a supervisory board member, said that it has confirmed the rumors that Daimler is "in the sight of the foreign hedge fund."
A spokeswoman for the company, responding to the magazine story yesterday, said the company has no indication that any hedge fund is interested.
The rumors seem to have gotten more specific since that statement. This morning, the newspaper Sueddeutsche Zeitung is reporting that the Swedish investment fund Cevian Capitalis buying up shares.
The meaning of the labels can be slippery, especially since the laws vary from one country to another, but Cevian seems from the description on its website to be more of a private equity fund than a hedge fund. Still, if it is buying a large chunk of Daimler, it probably wants to shake things up. That website refers to its strategy of "active ownership."
The terminological distinction is important because German politicians have taken to denouncing foreign hedge funds as "locusts." Maybe a foreign (but European) PE fund seems less threatening.
At a maximum (and I'm engaging in nothing more than blue-skies speculation here folks) this sort of news can put a company "in play" as an acquisition target. I doubt Cevian would want to acquire such a "big fish" outright, but there are other companies in the world that would want Daimler.
The magazine, Focus, citing a supervisory board member, said that it has confirmed the rumors that Daimler is "in the sight of the foreign hedge fund."
A spokeswoman for the company, responding to the magazine story yesterday, said the company has no indication that any hedge fund is interested.
The rumors seem to have gotten more specific since that statement. This morning, the newspaper Sueddeutsche Zeitung is reporting that the Swedish investment fund Cevian Capitalis buying up shares.
The meaning of the labels can be slippery, especially since the laws vary from one country to another, but Cevian seems from the description on its website to be more of a private equity fund than a hedge fund. Still, if it is buying a large chunk of Daimler, it probably wants to shake things up. That website refers to its strategy of "active ownership."
The terminological distinction is important because German politicians have taken to denouncing foreign hedge funds as "locusts." Maybe a foreign (but European) PE fund seems less threatening.
At a maximum (and I'm engaging in nothing more than blue-skies speculation here folks) this sort of news can put a company "in play" as an acquisition target. I doubt Cevian would want to acquire such a "big fish" outright, but there are other companies in the world that would want Daimler.
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