When raiders strike: Are US activist investors in City boardrooms a force for good or a costly nuisance?

Michael Bow
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Gordon Gekko: Hollywood’s villainous portrayal of activism
When US investor Nelson Peltz walks into a boardroom carrying a piece of paper you know there’s going to be trouble.
Peltz, best known in the UK for bouncing Cadbury’s into a series of spin-outs and mergers, has a tried and tested tactic for effecting change: meet a chief executive, present him with a white research paper – and threaten to go public if his suggestions are not met. Such tactics have earned activists like Peltz a number of other less flattering sobriquets – raiders, barbarians, vultures – but their role on the corporate landscape is much more valued than Hollywood portrayals of corporate supervillains like Gordon Gekko suggest.
“As an investor, activists are not a bad thing – they shake up sleepy management,” one M&A banker said. “Other investors can’t do that. They have long-term relationships and they get nervous if they align themselves with activist investors because the other companies they invest in might say they don’t want them on the register.”
The companies investing pensioner and insurance money – so-called institutional investors – often shun the activist investor tag. Yet behind the scenes, British fund managers are just as robust in their dealings with company management and the itch for change.
“We wouldn’t formally see ourselves as activists but if we want change we’ll go and press for it,” Jupiter’s head of governance Ian McVeigh said. “We think institutions should be prepared to be very direct with the management teams.”
David Lis from Aviva Investors, which manages £246bn, agrees. “We’re activists ourselves, though we tend to be long-term engaged investors who petition for change behind the scenes,” he said. “Shareholder activists are positive if they bring fresh ideas and lead to change.”
A recent study by hedge fund trade body Aima found that just 15 per cent of activists funds are European – and more than two-third of activists are American.
There are notable exceptions – Anglo-Swedish firm Cevian Capital, chaired by Lord Paul Myners for example – but activism is predominately an American phenomenon.
With the wall of cash in US activist funds – assets now total £78bn – and opportunities in the US close to saturation point, the UK is starting to look like ripe territory for the next wave of activism.
Big name US funds like Knight Vinke, co-founded by Eric Knight, have already appeared on the radar of huge banks such as UBS, while the world’s biggest activist, Paul Singer’s US firm Elliott Associates, this week won a bitter battle to have two board members join Katherine Garrett-Cox’s Alliance Trust.
“The Alliance vote will give more encouragement to US managers,” a senior City banker said yesterday.
“US activists need to build a reputation and be feared. As soon as someone like Knight Vinke gets on the register the stock price automatically increases because people know something is going to happen.”
Yet some say the rise of US activists could be the symptom of a more acute malaise in corporate Britain.
The boss of Hermes Investment Saker Nusseibeh said UK fund managers have created an environment where US activists find it easy to flourish.
“The vast majority of asset managers are abdicating their responsibility because they don’t care about the management,” he said.
“It’s not the fault of the American houses, it’s the fault of British fund managers. If activists start being a reason to rethink stewardship and force the UK regulator to engage then they can be a force for good.”

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