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Governance

Shareholder activism moving beyond hedge funds — report

Shareholder activism has evolved into a widely accepted approach to investing from a niche strategy pursued by a small number of hedge funds, said a J.P. Morgan Chase report on the 2017 proxy season.

While shareholder activism in the 12 months ended June 30 declined slightly from the previous year, the report said those campaigns continued the long-term trend of multi-demand, value-oriented agendas. With activist hedge funds struggling due to the continuing outflows in the broader hedge fund industry, the report said smaller and more "non-traditional" activists initiated most of the new campaign activity in the U.S. during the 2017 proxy season.

Globally, there were 606 campaigns in the year ended June 30, and the U.S. saw the largest share of activity with 327 campaigns. Of those, 68 total proxy contests were launched during the 2017 proxy season; as of June 30, 54 had been completed. Of that total, 19 each went to a shareholder vote or were settled, while 16 were withdrawn.

Nineteen percent of U.S. campaigns were announced by first-time activists. Institutional investors, which the report includes as mutual funds, investment advisers and pension funds, announced 44 proxy campaigns, 13% of the total U.S. campaign volume.

"While these investors have historically focused on governance issues as defined in their respective proxy-voting policies, more than half of the 44 campaigns were instead aimed more generally at maximizing shareholder value, which hedge fund activists have traditionally used to agitate around a wide range of strategic and corporate actions," the report said.

Among the largest institutional investors who voted in proxy contests, the $323.6 billion California Public Employees' Retirement System, Sacramento, voted in 47 contests and supported the dissident slate fully in 23% of those contests and partially in 17%. BlackRock (BLK) voted in 46 contests, supporting the dissident slate fully in 9% and partially in 15% of contests.

Of the institutional investors listed, Goldman Sachs Asset Management had the highest percentage of votes supporting the dissident slate fully or partially, supporting 69% of its 16 votes.

Campaign types included in the report are board control and representation, enhancement of corporate governance, maximizing of shareholder value, removal of directors or officers, and a vote or activism against a merger.

The report is available on J.P. Morgan Chase's website.