Hedge fund are leading the activist investing charge, and simply making noise can sometimes be enough to get concessions from a management team eager to avoid a prolonged campaign, but if it comes down to a shareholder vote hedge funds usually need to get institutional investors on their side. While pension funds and other institutional investors are becoming more willing to go along with activist strategies because of their potential for outsized returns, socially responsible investing (SRI) groups are the most likely to vote against management, though it’s not clear that they will make natural allies for hedge funds.
SRI not what we normally think of as investor activism
“Four of the top five most rebellious asset managers were Socially Responsible Investing (SRI) specialists, with Christian Brothers Investment Services, Calvert Investment Management and Bridgeway Capital Management among those whose voting was informed by a desire to generate an impact on everything from environmental sustainability to diversity on boards,” writes Nick Dawson for Proxy Monthly.
This shouldn’t be a surprise, the whole point of SRI is that some people are willing to trade financial returns for social impacts, and pushing management to take enact social and environmental policies that go beyond what regulators require can be one component of that approach. But SRI is a far cry from what we normally think of as activist investing. While it includes many of the same tactics, activism is usually focused on unlocking shareholder value, and the overlap with SRI campaigns will only occur from time to time.
Trillium Asset Management’s line in the sand
Trillium Asset Management, which had the highest percent VAM (votes against management) and $1.5 billion AUM, was unsurprised to learn that they voted against management more than half the time, or that they were one of the most vocal investors that a company might have to work with. Trillium actively engages management on environmental issues, privacy concerns, disclosure and accountability for political donations, and more. It is also stringent on compensation packages.
“We have high standards on remuneration, and draw a hard line in the sand in that we will not support a pay package over $7 million,” says Trillium Asset Management senior vice president Jonas Kron. “We also look for boards to have at least 20% diversity, including gender and racial diversity.”
Aside from the tough stance on compensation, these aren’t the issues you normally hear hedge funds talking about. If they want to get SRI asset managers on their side, activist investors may have to consider the social impact of their plans.