Requesting An Activist

Requesting An Activist by Stock Pucker

Don’t forget – sign up for our free daily newsletter to stay in the activist investing know. “Periodically, we are approached by large institutions who are disappointed with the performance of companies they are invested in to see if we would be interested in playing an active role in effectuating change.” — Bill Ackman, Pershing Square Capital

This is what’s known as an RFA — a request for activist.

Institutional investors, long considered to be allies of corporate managements, have started siding with the activists.

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More

That’s because activist investors are getting shit done (“GSD”). Recall, ValueAct Capital with only a 1% stake in Microsoft got a board seat and is credited with pushing out CEO Steve Ballmer. This was only possible when Microsoft realized that ValueAct represented the voice of many large shareholders as well. ValueAct Founder Jeff Ubben reached out to Microsoft’s largest shareholders to present his plan.

Dell is another interesting case, with T. Rowe Price supporting Carl Icahn in his opposition to Michael Dell’s proposal to take the company private. Southeastern Asset Management worked with Icahn on a rival bid for Dell.

All this brings us full circle — Institutions aren’t just content with being activist supporters, they’ve started giving ideas to activists to pursue.

The $600 billion giant T. Rowe Price has started pushing hedge funds to take up activist campaigns. Larry Fink, BlackRock CEO is on the other side, publicly opposing short-termism of activist investors. Still, many BlackRock fund managers pass ideas to activists.

With all this, activists are still outperforming as an asset class despite the rise in competition and AUM. Alternative Investment Management Association pegged the annualized returns for the three- and five-year periods ended 2014 were 13.9% and 7.8% for activist hedge funds, versus 6.1% and 4.5% for the broader hedge fund index.

Another reason for change in the views of the institutional investors is due to the maturing of activist investors as a group. Activists like Dan Loeb of Third Point were famous for their “Poison Pen” letters — a weapon to publicly shame corporate executives for their actions.

Such corporate bashing has retreated to a great extent and the line between institutions and activists could further blur.