LONDON (Reuters) - Activist investors are back and flexing their muscles again after fading into the background during the credit crisis, though they are now dependent on cutting deals with big institutions to get their way.
While not quite back to the pre-crisis heyday -- when hedge fund TCI’s attack on ABN AMRO in 2007 helped trigger the bank’s sale -- Edward Bramson’s recent ousting of F&C’s FCAM.L chairman and Elliott Advisors’ call for the sale of Actelion ATLN.VX reveal activists’ growing confidence.
These funds, who typically buy a stake in the hope their calls for change will increase its value, are also widening their attacks on listed investment funds and increasingly finding success.
“After the credit crisis a lot of hedge funds and prop trading desks had their capital withdrawn, and they couldn’t use or get leverage,” said Numis analyst Charles Cade.
“But it really started to come back last year and you saw a lot more hedge funds start to look at the sector.”
Hedge fund Laxey Partners has demanded voting changes and share buybacks at Alliance Trust (ATST.L), despite owning just 1.5 percent, while activists such as Weiss Asset Management, BNP Paribas Arbitrage and QVT have built a stake of more than 30 percent in Castle Asia Alternative CASAA_p.L.
A 75 percent rise in the FTSE 100 .FTSE since its low nearly two years ago and better client inflows have given activist hedge funds renewed power, with more of them willing to do the hard work of heckling boards after accepting the 'easy money' from latching onto rising markets.
“There are many signs that the strategy is poised to do well in today’s environment,” said one fund of hedge funds executive, who invests in dedicated activist funds and who spoke on condition of anonymity.
This time around many are teaming up with institutions -- last week Elliott Advisors’ joined a unit of Swedish bank SEB (SEBa.ST) and the Danish AP Pension in rejecting U.S. chemicals giant DuPont’s DD.N bid for Danisco DCO.CO.
Institutions themselves are feeling pressurized by the UK government to meet commitments under the new UK Stewardship Code, which obliges investors to monitor the firms they own and intervene when concerned.
“There has certainly been encouragement from the government, the likes of (British government Business Secretary) Vince Cable, for institutions to be more visibly, actively engaged ... to intervene where it is necessary,” David Lis, Aviva Investors’ (AV.L) head of UK equities, said.
Aviva took less than 24 hours to publicly back Bramson’s vehicle Sherborne Investors SIAGS.L in its call for a management shake-up at F&C in December.
Lis told Reuters that by going public he hoped to encourage other institutions to back Sherborne. Without Sherborne’s move, Aviva’s demands would have stayed behind closed doors, he added.
“There are lots of traditional long-only institutions who are willing to align themselves with the more vocal activist managers, as they think they can effect the change they seek,” the fund of funds executive said.
Before the credit crisis, activists -- even those with relatively small shareholdings -- scored several high-profile victories against firms wary of big hedge funds’ power.
In May 2005, for instance, TCI and hedge fund Atticus forced out Deutsche Boerse’s then chief executive Werner Seifert after its failed takeover bid for the London Stock Exchange.
But some of these activists were badly burned during the credit crisis, reversing earlier successes.
TCI’s fund fell 40 percent in 2008, while Atticus lost billions of dollars after big falls in financial stocks and the fund put its large investment in Deutsche Boerse into a side pocket -- a portfolio to be wound down separately.
“What’s working (now) is restructuring activism. (Bramson) is not putting F&C up for sale, he’s trying to make it work,” said Colin Kingsnorth, partner at Laxey.
Tighter credit conditions are making pre-crisis goals, such as forcing company break-ups or asset disposals, tougher. Global M&A fell to $2.4 trillion in 2010 from $4 trillion in 2007, according to Thomson Reuters data.
“There is less of that going on at the moment,” said Lis. “That is not to say there aren’t still underperforming companies around.”
Editing by Hans Peters