Michael Piwowar of the Securities and Exchange Commission has recently asked companies to submit their views on regulation of the proxy advisory industry, the Financial Times reported last Wednesday. Regulation of proxy advisers in the U.S. has been under consideration in recent years and has proven controversial in the investment world. A number of issuers have criticized proxy advisers for their influence on shareholders as well as their lack of transparency and oversight. Others have taken issue with the lack of competition, contending that the industry is dominated by two firms: Institutional Shareholder Services and Glass Lewis. The House of Representatives passed a bill that would require registration and greater disclosure from proxy advisers, but the law has yet to be presented in Senate. Market watchdogs are also considering proxy adviser regulation in other regions, particularly Australia, where issuers are voicing the same concerns.
Check out our H2 hedge fund letters here.On the other hand, investors and proxy advisers have questioned the purpose of regulation, saying companies push for regulation because they don’t like when advisers recommend against them. “There is no monopoly and no requirement to buy these services; [institutional investors] can buy from one, all, or none. There could not be a better example of market efficiency or a worse argument for government interference. And yet, here we are,” wrote Nell Minow, vice chair of ValueEdge Advisors.
One other viewpoint: Janus Henderson Investors’ Dick Weil says passive investors shouldn’t even vote.
What we'll be watching for this week
- Will HomeStreet accept Roaring Blue Lion Capital’s director nominations and governance proposals after the bank deemed the activist’s notice invalid?
- Will shareholders of Alpine Total Dynamic Dividend Fund heed the advice of activist investor Saba Capital Management and reject a new investment adviser agreement with Aberdeen Asset Managers at the special meeting Wednesday?
- Will investors of Aberdeen Asset Management support the combination of seven closed-end funds advised by the firm at its extraordinary meeting Friday?
Activist shorts update
Shares in Express Scripts traded up as much as 16% Thursday on news that health insurer Cigna had agreed to buy the pharmacy benefit manager for $67 billion in cash and stock, representing a premium of approximately 31% on the target’s closing price Wednesday. Express Scripts has been in the crosshairs of various short sellers in recent years, including Citron Research and Dialectic Capital. In December 2016, Citron claimed that then President-elect Donald Trump’s stance on drug pricing would hurt Express Scripts. Two months earlier, Dialectic contended that the prescription provider’s margins were likely to contract as patients and insurance companies began to push back against rising drug prices. Dialectic exited its position with an 11.6% gain, but Citron, which is still short Express Scripts, is suffering a 5.1% loss, according to Activist Insight Shorts. Cigna, which has a dozen activists holding just under 2% of its shares in the aggregate, fell 11% on news of the deal and has a relatively high possibility of attracting an activist, according to Activist Insight Vulnerability.
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Article by Activist Insight