As activist investing continues to spread in popularity, we’ve begun seeing studies that attempt to gauge whether activism actually creates value for shareholders or not. Public pension funds are starting to get in on the action, now becoming a formidable force in the activist arena as Proxy Monitor found that this year nearly one-fifth of all the shareholder proposals brought to Fortune 250 companies were sponsored by them.

Now there’s a new study that looks at whether public pension fund activism makes a difference or not. As it turns out, their activism and even ownership to some degree is correlated with lower stock returns.

Stock returns fall when public pension funds go activist

University of Tennessee Professor Tracie Woidtke analyzed the stock returns of companies that became the activist targets of public pension funds between 2006 and 2014. The Manhattan Institute’s Proxy Monitor published her report on the topic as a companion to the regular Proxy Monitor report, and interestingly, she found a correlation between shareholder proposal activism by public pension funds and lower stock returns.

She examined Fortune 250 companies that were targeted by shareholder proposals from five of the biggest state and municipal pension funds and learned that, on average, the companies’ stocks underperformed the S&P 500 Index by 0.9% in the year after the vote on the proposals. Just five big state or municipal pension funds dominate shareholder proposals:

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Also the number of proposals introduced by those five funds has climbed steadily over the last few years:

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The public pension fund’s activist involvement that had the biggest negative impact on stock prices was CalPERS. The Manhattan Institute warned that the sample sizes for CalPERS, CalSTRS and the Florida fund were probably too small. However, they did have a big enough sample for the the New York State Common Retirement Fund, which also had a huge negative impact on share prices. Woidtke found that companies targeted by that fund saw their stock prices decline by 7.3% compared to the broader market.

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Proposals on social issues not supported

Perhaps the main reason the New York State Common Retirement Fund’s activist campaigns had such a huge negative impact on its targeted impact is because it began to aggressively push out proposals on social issues like political spending starting in 2010. As you can see from the graph, political spending or lobbying made up the lion’s share of the fund’s proposals over the last decade:

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There’s a marked difference in the strategy employed by the State fund and that used by New York City pension funds, which is more balanced:

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Interestingly, the New York State fund’s proposal activity has dropped off dramatically this year, while New York City funds’ activities have picked up.

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Proxy Monitor has found that proposals on social issues do not tend to get majority support from shareholders. In fact, not a single social proposal issue received majority shareholder support this year:

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Public pension fund targets less valuable

According to Woidtke, this is why public pension fund ownership in general tends to have a negative share-value effect. She said after controlling for “various factors,” companies public pension funds invested in between 2001 and 2013 tended to be less valuable than the companies that other types of investors and private pension funds invested in.

She found the correlation to be even stronger with the companies the New York State Common Retirement Fund invested in and targeted with proposals about social issues. In fact, she said the “negative ownership effect” did not even exist between 2001 and 2007, which is again an interesting discovery because the New York fund didn’t start aggressively pursuing social issues until 2010.

Proxy access proposals also a problem

This year brought a meaningful increase in the number of shareholder proposals brought to Fortune 250 companies’ proxy ballots, mainly because of changes relating to proxy access and the suspension of restrictions on shareholder proposals that conflict with management proposals.

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Woidtke looked at trends in this year’s proxy access proposals brought to Fortune 250 companies and found that when shareholders supported them, the targeted company’s stock price underperformed the S&P 500 by an average of 2.3% in the days after the company’s annual shareholder meeting. She also found that the opposite was true, although to a lesser extent. When shareholders rejected a proxy access proposal, the company’s stock outperformed the S&P by 0.5% on average.

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Of course this study only scratches the surface in terms of what shareholders think of proxy access proposals since this is a fairly new subject which came in a year with a lot of uncertainty in proxies. The Manhattan Institute warns, however, that more study should be done to determine if there is an “actual relationship” here and not just “statistical noise.”