From the blog: Not so long ago activist investors were mostly something US-based pension managers had to deal with, largely because it was US-based companies that they had in sight.
That’s changing. Activist investors are starting to get more interested in opportunities to target UK-based companies that are seen to be underperforming relative to their market.
That’s changing. Activist investors are starting to get more interested in opportunities to target UK-based companies that are seen to be underperforming relative to their market.
Some companies say they won’t change their strategy as a result of any appointments of activist shareholders, but I wouldn’t be so sure. Changing strategy is what activist shareholders do, like it or not.
This, combined with what is often seen as an aggressive attitude and a desire for quick profit, is why they’re sometimes described as corporate raiders. It’s also worth bearing in mind that, while activist investors don’t always get what they want, their attempts can be very influential even when they’re not successful.
Force for good
The other thing for UK pension fund managers to bear in mind is this: very often, activist investors are a force for good – or at least for transparency.
In the US they have played a big part in getting shareholders more say in how much executives are paid, for instance.
And activists are just as likely to be lobbying quietly behind the scenes as running brash media campaigns, although in either case they’re probably gathering support from a coalition of like-minded investors looking for a better return.
This is where things start to get really interesting for pension fund managers, as they are often seen as potential supporters of activist investors.
Look at the UK’s economic environment at the moment and it’s not hard to see why – or indeed to see some parallels with the US experience.
For a start, the low returns available in UK markets for some time now are putting extra pressure on companies to meet their pension obligations.
They’re also under pressure from regulators and investors pushing for better corporate governance, in the hope it will prevent a second financial crisis.
So this means there’s a two-pronged argument for UK pension fund managers to pay attention to the arrival of activist investors: First, they’ll be doing their level best to change how companies are run.
Second, they’ll be trying to get pension fund managers on board to help them do it – and they may well have some very good arguments to make when they do so.
Nuno Fernandes is professor of finance at IMD business school
