Activism for long-term change is on the rise in the U.K. and continental Europe among institutional investors, as corporate governance and other concerns climb higher on investor agendas.
Sources also expect activist investors that seek short-term opportunities from M&A activity to rise as the impact of the U.K.'s decision to leave the European Union begins to bite.
“We have seen some of the major groups taking more action in (the long-term activism) space, and it's the major groups that have the power and ability to do things — they could be large asset owners or asset managers,” said Stephen Miles, global head of equities at Willis Towers Watson PLC based in Surrey, England. “These universal owners control a large number of assets in the system, and there is a greater recognition among those groups that it is worth investing that time and energy to be an active owner and to engage with corporates. They are upping their game.”
Mr. Miles said the consultant has encouraged and seen money managers apply increased resources to this area, “hiring and beefing up internal corporate governance teams, in response to the recognition that this is important to asset owners.”
Institutional investors are stepping into the breach left open by hedge funds, which have taken on fewer campaigns since the financial crisis. “If one looks at campaigns that were made public by hedge funds, excluding cases of M&A activism, we are still well below the levels reached before the financial crisis,” said Nelson Seraci, associate director, special situations research at corporate governance firm Institutional Shareholder Services in Brussels. “However, it seems the void left by hedge fund activism has been picked up by traditional investors, who have become more vocal, especially in the U.K.”
Mr. Seraci said the number of activist investors and their assets under management in Europe appears to have shrunk vs. the prior economic cycle, or at least has not grown. He said tactics used before the 2008 financial crisis “were considered aggressive by traditional investors and overly focused on short-term bumps for stock prices,” and a number of the strategies also have closed due to redemptions. Those that survive tend to engage behind the scenes, he said.
“Simultaneously, traditional investors have taken responsibility for engagement with companies, not needing in many cases an activist hedge fund to be the catalyst for change. This is mostly true in the U.K., and to a much lesser degree in continental Europe, where other factors are at play,” added Mr. Seraci, such as a culture of avoiding public confrontation, legal loopholes or unfavorable regulation, and conflicts for bank-owned money managers.