Active fund managers are increasingly turning to shareholder activism as a way of protecting their investments and driving returns, according to analysis by Headland, the communications consultancy.
Active fund managers are increasingly turning to shareholder activism as a way of protecting their investments and driving returns, according to analysis by Headland, the communications consultancy.Headland examined UK markets data from Activist Insight, separating “conventional active managers” from “pure play activists” such as Elliott Management and Crystal Amber. It found that the former launched 55 public demands in 2019 versus 35 in 2018 and just 13 five years ago.
Prominent examples last year include Columbia Threadneedle and Schroders’ decision to support Coast Capital in demanding the removal First Group’s Chairman and; L&G’s opposition to Barrick Gold’s plans to buy out gold miner Acacia Mining.
Over the last 10 years, conventional active managers have launched more (147) governance related campaigns than their pure play activist counterparts (117). But they have given broadly equal preference to two other key demand groups identified: taking balance sheet action and; changing the business strategy.
Activism has proven to be an effective strategy for active managers. Over the last five years, more than a third (37 per cent) of their demands have been implemented by the companies in question. But there is arguably room for improvement: 57 per cent of the demands made by pure play activists have been successful.
Del Jones, Director at Headland, says: “Active managers have been losing their erstwhile distaste for shareholder activism, driven in part by the rise of passive. While this has become a clear trend, we shouldn’t expect a stampede as the strategy doesn’t make sense for many managers on organisational, cultural or cost levels. Activism can also present significant reputational risk which needs to be carefully considered.”
Headland’s analysis shows that the UK has yet to see a specific environmental or social activist demand – from an active manager or indeed a pure play activist. However, this has started to happen in the US. In 2018, pure play activist fund JANA teamed up with the California State Teachers Retirement System (CalSTRS) to push Apple into addressing smartphone addiction among children. The company affirmed its commitment to young customers the following day and subsequently introduced new controls.
Jones adds: “We wouldn’t be surprised to see the UK’s first environmental or social activist campaign in 2020. Numerous studies have shown that ESG drives long-term shareholder value. And active managers are putting ESG at the heart of their fundraising strategies.”
