Activist to public pensions: Thank you!

Greg Taxin
Jeff Chiu | AP
Greg Taxin

The surging power of activist investors is bolstered by a growing ally: public pensions and other big institutions.

"Activists have become more effective because they can draw upon institutional investor support and can help companies drive their stock prices closer to intrinsic value," said Greg Taxin, managing member of activist investor Luma Asset Management. "It's a great thing for investors, for pensioners, for retirees and the capital markets generally."

Taxin, the recently departed president of hedge fund firm Clinton Group, made the comments this week during a panel discussion on activist investing hosted by the Harvard Business School Club of New York and moderated by Yale School of Management's Jeff Sonnenfeld.

Taxin said an important catalyst was the 2000 enactment of Regulation Fair Disclosure, or "Reg FD," which required public companies to give equal access to important business information.

"Large institutional holders are more willing than ever to step up to the plate and support these sorts of value creation opportunities," Taxin said about efforts by hedge funds to prod companies into being more effective. "They are less concerned than ever about being very friendly with management and gaining special access because there aren't a lot of benefits."

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James Copland, director of the Manhattan Institute's Center for Legal Policy, warned that increased institutional involvement wasn't always positive.

"What I worry about … is this sort of trend for the institutional investors in some cases becoming quasi-activists and starting to tinker with the rules," Copland said at the same event.

He cited efforts by the Scott Stringer-led New York City pension and others to make it easier for smaller shareholders to nominate directors as an example of "politicized activism" along "individual agendas."

Copland said such changes — and others that take power away from boards such as faster director replacements and lower shareholder voting thresholds — empower "both good and bad" activism.

"Some of these rules can make sense, but I think the empirical evidence on most of it is far more mixed," Copland said.

Eric Sumberg, a spokesperson for Stringer, gave this statement in response: "Comptroller Stringer's Boardroom Accountability Project seeks to give substantial, long-term share owners a right to nominate directors. This would change the market by making director elections meaningful, which will make boards more responsive to share owners. With this right in place, we expect to see better long-term performance across our portfolio."

Copland also noted that competing factions on a company board could be problematic, as happens when investors win seats through a hostile proxy vote.

Manhattan Institute, a free market-focused think tank, has several hedge fund manager board members who use activist strategies, including Paul Singer of Elliott Management and Dan Loeb of Third Point.

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Both Taxin and Copland agreed that activists were a positive force overall.

"On balance … big hedge fund activism, the $110 billion in capital, does drive value," Copland said.

"There is this gap between intrinsic value and where they're trading in the market," Taxin said on underperforming, poorly run companies. "I think of the activists, really, as facilitators, as fixing those valuation gaps."

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