Activist investing: forget hedge funds, leave it to private investors
Demands from “activist investor” hedge funds are every bit as short-termist as the management teams they are trying to shake up, says Matthew Lynn. Private investors will take a long view.


Hardly a week seems to go by without a fresh activist assault on a major British company. Last week, it was the turn of the energy giant SSE. Elliott Management, one of the most aggressive activist investors, attacked the company for not spinning off its renewables business, preferring instead to keep itself intact and beefing up its plans for switching out of fossil fuels.
Elliott, of course, is best known in the UK market for its long-running campaign against the pharmaceuticals giant GSK, which has had to scramble to defend chief executive Emma Walmsley in response to the pressure. Meanwhile, Shell is under attack from the hedge fund manager Daniel Loeb, who is campaigning for it to split out its renewables unit from fossil fuels. And Barclays has managed to see off the campaign for change led by the activist Edward Bramson for now, but either he or someone else may be back soon, pressuring either the bank or another major company. The list goes on and on.
The wrong kind of activism
Of course, there is nothing wrong with shareholders demanding changes at major companies. Management teams can often become very inward-looking and complacent. They stick with strategies long after they have completely run out of steam, ignore new ideas, persist with pet projects even when they have failed, and concentrate more on rewarding senior management than the shareholders. Boards of independent directors are meant to stop that from happening, but are drawn from a small, self-perpetuating clique, with little incentive to provide any proper oversight.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
And yet there are two big problems with the way change is forced on companies right now. The activists’ campaigns are starting to look every bit as tired as the companies they are trying to reform. Each time one is launched the demands are tediously familiar. A demerger? Check. More aggressive share buy-backs? Check. Sweating the balance sheet to release more cash? Check. A special dividend for shareholders? Check. Throw in something about changing the board or updating the marketing and that is about it. In reality, it is very flimsy and very repetitive, as if they are working from a script. You would get a more individual conversation from someone at a call centre.
What’s more, most of the campaigns are run by hedge-fund managers, investing borrowed money and looking for a quick profit. Their demands typically involve some financial engineering designed to generate a 20% to 30% boost to the share price over a few months and not much else. They are every bit as short-termist as the management teams they are trying to shake up and sometimes even more so.
Bring in the private investors
What activist investment needs is more involvement from private shareholders. There are some early signs of that happening. For example, the London-based investment platform Tulipshare is mobilising small shareholders to lobby for changes at big companies. It has already used votes to try and force Apple to make it easier for iPhones to be repaired (now that really is a good idea, as anyone who has paid for a new screen will know). It is now campaigning for Coca-Cola to use less plastic (another good idea, come to think of it, since we all know it tastes better out of a glass bottle anyway). This week, the company raised an extra €9.5m in funding to fund further growth.
This kind of platform might work or it might not, but there are big advantages to smaller, private shareholders pressing for changes at a company instead of a handful of giant hedge funds. They are a lot more committed to the long term. Sure, there are some day traders who just want to flip in and out of an equity in the space of a few days. But most private investors would prefer to buy shares in well-run companies and forget about them for a few years, confident that they will earn a decent return. And that means they are more likely to press for real changes in a business, rather than short-term, financially-driven fixes.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
-
Emerging markets boast top growth stocks at bargain prices
Opinion Lim Wen Loong, investment director at Ashoka WhiteOak Capital, selects three growth stocks where he’d put his money
-
Beware the bubble in bitcoin treasury companies
Bitcoin treasury companies are no longer coining it. Short this one, says Matthew Partridge
-
Emerging markets boast top-quality growth stocks at bargain prices
Opinion Lim Wen Loong, investment director at Ashoka WhiteOak Capital, selects three growth stocks where he’d put his money
-
Beware the bubble in bitcoin treasury companies
Bitcoin treasury companies are no longer coining it. Short this one, says Matthew Partridge
-
Klarna leads a financial revolution – should investors buy?
Klarna has ambitions to rewire the global payments system and has huge growth potential
-
New faces don’t solve old problems – why strategy also matters when it comes to investment trusts
Opinion Changing managers often fails to boost a trust’s performance, says Max King
-
How to profit from silver’s record rise
Silver often lets investors down, but there may now be room for further gains, says Dominic Frisby
-
Are venture-capital trusts worth investing in?
Venture-capital trusts are a tax-efficient way to invest in early-stage companies. But are they worth the risk?
-
'Investors should back the AI maximalists'
Polar Capital is bullish on AI and believe that the sector is far from being a bubble
-
Last orders: can UK pubs be saved?
Pubs in Britain are closing at the rate of one a day, continuing and accelerating a long-term downward trend. Why? And can anything be done to save them?