Mainstream investors get behind
Jul 13, 2007
Ipreo study finds that
activist funds are viewed as a positive and growing trend
What do mainstream investors think of shareholder activists in general and
swashbuckling hedge funds in particular? That's what
Ipreo, the market
intelligence firm that owns Bigdough, set out to discover in a perception
study of portfolio managers and buy-side analysts. The results, which Ipreo
is preparing to distribute to clients, may come as a shock.
'It's going to surprise some companies that most regular investors don't
consider activists to be evil, attacking companies willy-nilly,' says Bill
Sherman, Ipreo's global head of data strategy and analytics.
While survey respondents couch their opinions in a measured, case-by-case
approach, it's clear they view activism as good for business. Only 5 percent
say activism is not helpful in unlocking shareholder value, and nearly 45
percent say it's beneficial for an activist shareholder to have a seat on a
target company's board.
Interestingly, the majority of buy-siders monitor the shareholder base of
securities they hold, and nearly 50 percent say the arrival of an activist
would affect their investment decisions. But the study reveals no clear sign
that mainstream investors are jumping on the coattails of activists by
increasing their existing investments in targeted companies. Perhaps Ipreo
will next look to trading data to analyze how mainstream investors behave
when an activist turns up in a stock.
A huge number of respondents - 86 percent - believe activism will keep
growing. 'I noticed that a more recent trend is institutions like large
mutual funds becoming more vocal and more active. I see that growing more
and more in the near future,' says one buy-side analyst.
The current cause célèbre is definitely executive compensation, with around
two thirds saying it was the most important issue raised during the last
proxy season, and 85 percent agreeing that investors should have a 'say on
Ipreo's advice? 'When an activist investor gets involved in your stock,
avoid a knee-jerk defensive reaction,' Sherman says. 'Sometimes a company's
natural reaction is to have an us versus
them mentality, with us
including most of their traditional investors. Our analysis shows they must
take a more measured approach.'
Nicole Maselli, Ipreo's director of analytics, adds that it's important to
learn all you can about an activist investor. 'Be educated about who they
are,' she says. 'Some are serial activists and seen as nuisances, so maybe
they could be safely ignored. But find out who they are first and prepare
for a conversation.'
by Neil Stewart
© copyright 2007 Cross Border Ltd