Our Activist Investing Annual Review – produced in association with Schulte Roth & Zabel yet again – will be published in January. With that in mind, I have no intention of scooping myself by revealing the data I am sure you’ll all be hungrily awaiting (journalists, ask to be added to our press list now), but I do think it’s worth explaining what we’re looking for – and to see whether you agree with our thinking.
What’s happening to the bull-market for activist investing?
Activism has only grown since Activist Insight was born, and on a definition that incorporates all shareholders looking to force economic or governance changes on companies, that is likely to be true for many countries in 2016. But below the headline numbers, it’s time to ask questions about how “activist investors” – that band of dedicated changemakers that generate most of the headlines – are really doing. Were they less active in 2016? Were there sufficient targets in each market cap and sector group to ensure continued growth, or were they forced into seeking opportunities elsewhere. Having already written about a slowdown in the first half of the year and a focus on smaller targets in November, we will be watching to see whether the trends have carried to the end of the year.
What influence will politics have on activism?
The election of Donald Trump as president of the United States will affect almost every aspect of the world we live in, and activist investing will get a double-whammy both from the economic effects of new policies and a changed perspective on regulation (especially given the appointment of Carl Icahn as kingmaker of the Securities and Exchange Commission).
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After a year in which shareholder primacy as an economic priority has come under criticism through price-gouging scandals in the pharmaceutical industry, shareholder rights such as precatory proposals, proxy access, engagement and the universal proxy have all been contested, and legislation to close the Schedule 13D filing window has been revisited and left unresolved, it seems fair to say that 2017 will see a lot of debate.
Beyond the U.S., Japan and the U.K. are continuing to press on with corporate governance reform, and South Korea seems to be making tentative steps in the same direction. Whether these efforts will lead to a flourishing of shareholder interventions remains to be seen.
Where now for short selling?
Activist short selling seems to be on the rise and has notched some notable victories in the past eighteen months. Markets are still trending upwards, driven by inflows from bonds (U.S.) or currency devaluation (U.K.), but some say valuations are frothy and insecure. If so, short sellers could be poised for a bountiful 2017. And expect to see some familiar names in unfamiliar locations – Muddy Waters Research has been active in Asia and Europe this year, with the former in particular taking a lot of heat over governance arrangements.
Shareholder activism defense has been the growth industry of the last few years, with the biggest hires largely coming in the investment banking world (Morgan Stanley, Evercore and UBS most recently). In 2017 and beyond, expect governance consulting to go from a niche offering to a critical part of professional services firms. CamberView has largely been unopposed positioning itself as the people to go to if you need to know what the people who vote are thinking (although – pardon the plug – Proxy Insight), but Sard Verbinnen and Kingsdale Shareholder Services have big ambitions for the New Year and others may yet try to capitalize.
Activist Insight is likely to spend quite a lot of time next year trying to get ahead of the pack in predicting where activists are heading, using our new Activist Insight Vulnerability tool. It’s now available for trial, and we will also be writing about potential targets on a regular basis, so do give us your feedback on what we think is an exciting development.
Article by Activist Insight