Hedge funds are set to lead increased shareholder activism in 2009, according to the latest Shareholder Activism Insight report commissioned by law firm Schulte Roth & Zabel from me
Hedge funds are set to lead increased shareholder activism in 2009, according to the latest Shareholder Activism Insight report commissioned by law firm Schulte Roth & Zabel from mergermarket.
The report, which was based on interviews with 25 corporate executives and 25 activist investors, found that 56 per cent of respondents expect to see an increase in shareholder activism over the next 12 months.
A further 66 per cent expect hedge funds in particular to be the most active in the year ahead, more than any other buy-side investors.
In terms of specific sectors, 71 per cent of respondents expect the financial services sector to see the most activist investing this year.
Respondents tend to agree that underperforming shares are the most common driver of shareholder activism, with 79 per cent of overall respondents identifying a period of flat or negative growth, profitability or stock price as key drivers.
One corporate respondent acknowledged that shareholder activists play a positive role in this respect, as they often motivate companies to pay more attention to maximizing shareholder value than they otherwise would.
Other corporate respondents had a less favorable take on activist investing. Some 48 per cent of corporate respondents view activist shareholders as short-term market opportunists, with one corporate respondent commenting that companies’ long-term goals tend to conflict with the short-term goals of activist shareholders.
The same percentage of activists believes that corporate boards are passive rather than proactive when it comes to maximizing shareholder value.
Corporate respondents tend to view activist investors as short-term investors out to make the highest returns possible in the smallest window of time, but these initiatives do not necessarily drive all activists.
Nearly half (48 per cent) of activist respondents were passive investors for a year or more before turning active, and 67 per cent of activist respondents hold onto their active investments for the same amount of time.
The contrast between the perspectives of activist and corporate respondents also emerges clearly on the topic of new e-proxy regulations.
Several respondents from both groups see the shift from paper to digital as an environmentally sound, cost effective move.
But 84 per cent of corporates and 60 per cent of activists believe the rules will not truly benefit activists or shareholders.
Just four per cent of corporate respondents compared to 28 per cent of activists believe the rules will favour activist shareholders.
In spite of these differences, the majority of corporate executives (58 per cent) and activist investors (56 per cent) agree that open communication with management is the most effective strategy for successful activist investors.
Similarly, the majority (67 per cent) of corporate respondents believe the best defensive strategy a company can use against activism is maintaining an active dialogue with its shareholders.
