Traditional funds 'should be more activist'

By Joe Marsh, special to Fund Selector Asia

Added 5th August 2015

Shareholder activism is often seen as the preserve of hedge fund and private equity managers, but some allocators want long-only firms to be more proactive on this front.

Traditional funds 'should be more activist'

Many long-only asset managers are not actively involved in influencing how their portfolio companies are run, said Peter Seligman, director at Meyado Private Wealth Management in Singapore. 

It could be that they don't challenge excessive management salaries or they too readily accept sub-standard stock price performance.

“A lot of long-onlys are guilty of not taking enough of an active role. I wish [an activist approach] was more common.”

He does not advocate the kind of substantial involvement sometimes initiated by hedge funds. “But some more obvious activity from long-onlys would be welcome.”

It’s relatively rare that traditional managers seek active engagement with their portfolio companies, though there are exceptions. For example, at Invesco, investment director and head of the Singapore office Jalil Rasheed told FSA in a past interview that his fund may hold a stock five years or more, and therefore by necessity the team becomes more of a business partner of the investee company.

Mutual fund activism?

However, activist strategies hold challenges for long-only firms, argues Joyce Ngan, director of global product advisory for managed investments at Deutsche Asset & Wealth Management.

For one thing, traditional mutual fund structures do not suit an activist approach, she said. They must provide daily liquidity, but discussions with company boards about making changes do not yield fruit overnight.

Hedge funds, on the other hand, can align their liquidity terms to match their strategy, said Hong Kong-based Ngan. “The way they invest is a form of private equity in a more liquid fashion.”

To the extent it applies, this could be one of the many factors that Deutsche AWM considers when assessing funds, Ngan said. But it is not something she specifically looks for when selecting traditional managers.

The A word

Another reason for these firms’ seeming reluctance to practice – or publicise – activist strategies may be the negative connotations sometimes attached to them.

Certainly there are better advertisements for shareholder activism than the current fierce and very public fight between US hedge fund Elliot Associates and the company in which it holds about 7%, Samsung C&T.

Yet even in cases where activist investors have been accused of making their moves purely for short-term gain, said Seligman, most research shows that long-term performance improves after the intervention.

Traditional managers should publicise when they make an activist move, he said, but very few do so. “It’s possible this is related to negative connotations, but if you explain that the policy is to unlock shareholder value, you can paint it in a positive way.”

Seligman points to US-based Matthews Asia as a manager that is not seen as activist as such but that seeks to ensure shareholder value by often taking substantial stakes for 10 years or more.

“They use their relationship [with the portfolio company] to help ensure good governance and that all goes as they intend.”

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