Activist hedge fund managers may feel they face a losing battle in image relations. Mutual funds adv...
Activist hedge fund managers may feel they face a losing battle in image relations. Mutual funds advocating change in firms are 'white knights' fighting for unit holders, while their hedge funds are short term, profiteering "locusts".
Not so, according to Phil Goldstein, head of US activist Bulldog Investors, as some agitating produces mutually beneficial outcomes.
Reuters recently reported that Calpers noted investors improve their returns by putting pressure on companies to improve their performance - and that this strategy is likely to spread across the world.
"We have engaged with hundreds of companies," said Mark Anson, chief investment officer of the $182bn pension fund. "We know that governance works - we have the proof and returns to show for it. It is something we would like to see across the globe."
Most recently the spat between the Children's Investment Fund, under the stewardship of Christopher Hohn, and management of the Deutsche Börse drew attention to shareholder activism - as did the presence of other funds such as Seneca, Jana, Lone Pine, Third Point, Harris and Parvus in the fray - along with the subsequent criticism of Hohn by Man Group's Stanley Fink, who reportedly dubbed Hohn a "naughty little boy". The robust approach taken by Polygon against British Energy has also drawn press attention in the past year.
Not all European funds taking the argument to management have, however, been the best known of activist players. GAM recently signaled their European funds under John Bennett were "seriously considering more active discussions" with management of a mid-sized firm, which they had held for more than 10 years.
"We are seriously considering agitating for change in that company's management but that would be the first time we have done that," Bennett said, declining to name the firm.
"In Europe, hedge funds are helping either to change management or to agitate for change. At the small cap end, we know we have helped influence dividend distribution policies in two recent cases in Germany and, occasionally, we have discussions with other investors in doing this."
Goldstein concurs that traditional managers care more about their own company's corporate image than about their unit holders.
"If you are a mutual fund, being an activist is bad because you are trying to keep your name out of the papers," Goldstein says, "The Fidelities and JP Morgans of the world generally do not join us (in agitating)."
When seeking investments, Goldstein looks for depressed share prices but is turned away by large retail shareholders, widely dispersed shareholder bases, and trackers.
"I hate index funds," he says. "Many people are better off in index funds because most mutual funds underperform the index. The problem with indexing is that you have people who do not care about making money, and it is incredibly frustrating when you try to get to these people.
Although the US' SEC requires funds to have proxy voting policies if they do not wish to vote actively themselves, Goldstein says that too often decisions on important issues are delegated to third-party decision makers.
"I am not necessarily asking them to be activist but I think they should at least follow when someone else takes the lead. If someone like Carl Icahn can look at what is going on, they can at least take two seconds out of their day."
Activist hedge funds can work for the benefit of corporate management as well as shareholders.
Some hedge managers are dismayed by long only funds' lack of activism in investee firms.
Index funds have less reason than most to 'get active'
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