Money managers under the microscope
Embracing the activist
Activist investors have traditionally been kept at arm’s length by the mainstream fund houses. Fund managers at the major players haven’t felt able to align themselves with those agitating for change for fear their cosy chats with company chairmen might be compromised.
There are clear signs though that the mood has shifted.
Not only are institutions getting rapped over the knuckles for failing to apply active ownership principles, but the credit crisis has purged short-termist activists from the market, helping to soften the sector’s association with financial engineering and slash-n-burn tactics.
Of course, mainstream houses have always afforded themselves some measure of collaboration; they just did it well away from the public gaze and in the UK were careful not to fall foul of so-called ‘acting in concert’ rules which limited the conversations shareholders could have with activists. The activist funds, after all, effectively create their own insider information while planning a campaign.
David Walker’s review of the reasons behind the near-collapse of the banking system, however, has urged clarification of those rules with a view to smoothing the path to collective action.
LGIM has broken with protocol to praise Eric Knight’s campaign at HSBC, and in doing so raised another reason collaboration is set to increase: institutional investors simply do not have the remit to conduct the kind of detailed studies which had been a feature of Knight Vinke’s campaigns, and will need someone to do the research for them if those new demands on active ownership are going to be met.
Mainstream fund managers acknowledge the change in tone.
Iain Richards, regional head of corporate governance at Aviva Investors, said: “The sea change is far broader than just the old [activist] players being at it again.
“[More collaboration] is certainly possible, whenever someone puts together a proposal, institutional investors will be willing to listen to it. More and more varied institutions will take a more proactive interest.”
Robert Talbut, CIO at Royal London AM told us investors are now “much more comfortable” with activists, while George Dallas, corp governance director at F&C agrees, with a caveat or two: ”As a long-term-focused institution ourselves, the challenge with some of the activists is – do we share similar long-term perspectives? “So although there is an opportunity, that opportunity must be matched with having a similar philolosophy with which to come together and have more systematic engagement.”
Should these collaborations bear fruit, the implications are clear for the companies who end up in the firing line. No longer will they be able to rely on longstanding institutional investors sitting mute on the sidelines while they swat at the activist fly; big money will start to back activist campaigns, and that will force directors to act.