Inside Milkwood Capital’s hands-on UK activist strategy
PARTNER CONTENT
When Covid-19 hit in March 2020, Milkwood Capital had already transformed Menzies into a pure-play aviation business worth 30% of their portfolio. They’d split off the aviation operations from the newspaper distribution business, positioned it for sale, and even had an offer on the table in January 2020. They rejected it as too low.
Then the pandemic struck. Aviation stocks collapsed. Menzies fell nearly 90%.
The crisis became a crucible for Milkwood’s investment philosophy. Across the markets they noticed something peculiar – That boards pushed for rights issues that would severely dilute shareholders. “What really clicked for us then was how some boards weren’t really representing shareholders,” says André Tonkin, investment analyst and partner at the Windsor-based activist fund. “Every board would say, ‘we’re not just here to support shareholders, we have to represent stakeholders’ – the banks, employees, everyone else.”
Milkwood fought back aggressively, blocking dilutive rights issues across multiple holdings. Rather than accept a dilution at Menzies, they brought in co-investors at around £1. The aviation business was eventually sold in March 2022 at 608p per share – a 500% return over 18 months for Milkwood’s family office co-funders.
The experience validated an evolution that had been brewing for years. Simply buying cheap stocks wasn’t enough.
The Activist Pivot
Founded in 2014 by Rhys Summerton, a former Citigroup global head of emerging market equity research, Milkwood initially pursued deep value opportunities globally – Russia, Brazil, South Africa, anywhere prices looked compelling. The early years, while successful relative to peers, proved challenging to make the kind of returns they targeted.
“The first five or six years, we were bashing our heads against the wall,” Tonkin admits. “We were buying cheap things, but no one cared. It was a value trap.”
The shift began in 2018 with a South African industrial company, Argent, where active engagement with management sparked genuine value creation. Then came Menzies in 2019, where Milkwood orchestrated the strategic transformation that would prove the power of hands-on activism – even when tested by a global crisis.
Today, roughly half the portfolio comprises what Tonkin calls “observational positions” – high-quality management teams that clear an unusually high bar. The other half? Deeply activist investments where Summerton might serve as CEO or Executive Chair, even attending Monday sales meetings.
“It’s basically like being an operating partner for a private equity-owned company,” Tonkin explains, “except in small-cap UK publicly listed stocks.”
The UK Opportunity
The fund’s UK concentration – typically 70-90% of assets – reflects deliberate strategy rather than home bias. Following the 2008 financial crisis, UK banks de-risked aggressively, starving small and mid-cap companies of credit for over a decade. Combined with persistent pension fund outflows (from 40% UK allocation to around 4%), the market became structurally mispriced.
“UK small and mid-caps trade at emerging market prices,” Tonkin notes. “Why go to emerging markets when you can pay an EM price in a country with rule of law?”
The outflows create tactical advantages. Management teams watch their share prices decline regardless of performance, leaving them “punch drunk and willing to listen,” as Tonkin puts it. Milkwood typically buys just under 3% of a target, then sources a 10-12% line from asset managers struggling with their own outflows – sometimes below market price.
This year alone, the LSE has seen 56 buyouts. Milkwood owned four of them in a 10-stock portfolio. “We’ve learned to understand what private buyers are looking for,” says Tonkin. “The market is just a mechanism that creates opportunity to get assets cheap. The private market is very active and pays more rational prices.”
A Different Playbook
The shift to activism has altered return profiles substantially. The past five years have delivered over 500% cumulative returns. This year, the fund is up 25% through October.
The approach enables visibility that passive value investing cannot provide. Take IOCO, a South African IT services business where Summerton now serves as co-CEO. The company went from losing money with heavy debt to profitability and making acquisitions – a complete turnaround in twelve months achieved through cost restructuring, improved operating models, and proper staff incentives.
“To the degree we can, we’ve shifted responsibility away from Mr Market (whom we think might be dead) to the levers we can control. We’ve already got around $8m of next year’s profit in the fund, kind of earmarked in one position” Tonkin explains. “We know how that $8m is going to be generated in the absence of a big surprise. It’s not really reliant on other people. It’s reliant on us doing a lot of work. Maybe that’s why it’s not a popular space”
The five-person team charges no management fee for non-retail investors – a structure inspired by Buffett’s 1965 partnership – taking only performance fees above a hurdle rate.
The strategy’s niche appeal is becoming its strength. In an industry chasing scale, Milkwood has built something deliberately unscalable – and for the right allocators seeking genuine diversification, that might be exactly the point.
