Aug 21, 2017 (LBO) – Shareholder activists are on the rise worldwide, with public shareholder requests against quoted companies in 2016 doubling from the figure in 2013.
Shareholder activists now manage capital of more than 170 billion dollars, compared with less than three billion dollars in the year 2000.
“Shareholder activists often appear on a company’s radar when they have already accumulated a threshold amount of shares which have to be reported to the stock exchange commission. This is, usually, a holding of +5% of free-floating shares and leads to the investor’s identity being revealed,” according to an article posted by the World Economic Forum.
Such activists engage in one-off campaigns, governance-related proposals and remuneration crackdowns, with 104 S&P 500 issuers and eight FTSE 100 companies facing such pressure.
Although, shareholder activism is nothing new, influencing by shareholders in the past generally took place behind closed doors.
Now hedge funds, in particular, have taken on the role of confronting corporations. This can sometimes be destructive, especially if hedge funds focus on financial engineering.
Moderate activists and institutional investors such as pension funds or sovereign wealth funds, however, tend to act as guardians of long-term value creation, and tend to curb excessive executive compensation or megalomaniac investments.
Hedge funds too can provide candid analysis of a company’s state of health and highlight corporate pain points, deficits in asset valuation and capital allocation, growth options, leadership competency or organizational efficiency.
Using, public campaigns, hedge funds directly confront a company’s management or board with radical, uncomfortable change.