Paul Myners, the former City minister who urged institutional shareholders to engage more with corporate boards, is to become UK chairman of Cevian Capital, Europe’s largest activist fund manager.
Lord Myners will help Cevian identify investment targets, work with boards and build alliances with other investors.
The manager invests in 10 to 12 public companies for an average of three to five years, usually taking stakes of between 5 percent and 15 percent and working closely with management and boards.
The Cevian chairmanship will allow Lord Myners, formerly chairman of Gartmore, to put into practice his view that both companies and investors benefit when institutional shareholders are more engaged.
“It is ‘put your money where your mouth is’ time,” Lord Myners told the Financial Times.
“Under-performance is a waste of national assets, of productive capacity and a waste of people’s lives.” Over the past decade, Lord Myners has led several reviews of institutional investors.
As financial services secretary from 2008 to 2010, he was deeply critical of the performance of bank boards and shareholders during the financial crisis.
Sweden-based Cevian, with €3.5 billion (£3billion) under management, first started investing in the UK in 2009 and has publicly disclosed stakes in Old Mutual and Wolseley along with investments in Germany and Scandinavia.
Harlan Zimmerman, Cevian senior partner, said his fund’s style of activist, long-term investing would become increasingly common. “There is a very strong tailwind coming from governments and policymakers, who are trying to make investors accept that being a shareholder doesn’t just give you rights, it also gives you responsibilities,” he said.
It runs a fund that ranked fifth on Bloomberg’s 2010 list of top-performing large hedge funds. Cevian spends at least six months identifying a potential investment and generally approaches the board with concrete suggestions for changes in strategy or focus.
It may seek to add new directors to the board, particularly in countries where investor representation is common.
“Lack of challenge by shareholders often gives boards and management too much freedom – certainly this is the case in most companies that underperform their potential,” Mr Zimmerman said.
Lord Myners is particularly well placed to serve on boards and recommend others for them. In addition to Gartmore, Lord Myners has also been chairman of Marks and Spencer, Guardian Media Group and Land Securities .
In recent years, most UK investment firms have shied away from active engagement with the companies they hold.
That is partly because many funds are either passive index trackers or are so diversified that they do not have time to concentrate on many individual holdings.
Activist managers in the US have sometimes gained a negative reputation because they concentrate on trying to force management changes at troubled companies.
Cevian’s approach is relatively uncommon and is partly a result of its long-term investment horizon. Both investors and managers are committed for three to five years.
But Mr Zimmerman and Lord Myners predict that opportunities for this type of investing style will only grow.
The UK recently adopted a Stewardship Code that encourages investment managers to engage more directly.