Activists, But Not The Usual Kind
Business as usual?
Business as usual?
Elliott Management, the activist hedge fund run by Paul E. Singer (profile here in the New Yorker), is back in the news. They decided to take about a 2.8% stake in SoftBank, at the time of purchase. This news, that Elliott Management would be pushing for stock buybacks, board changes and increased transparency over the Vision Fund, sent Softbank’s market cap up from $89 billion on Thursday (when the news broke) to $97.4 billion, a day later.
This is what typical activist investors do:
They push for different governance (i.e. some board seats to represent investor interests).
Maybe they try to block transactions or break up a major conglomerate.
And they often try to return cash back to investors, typically through stock repurchases.
Stock repurchases are pretty controversial. Lenore Palladino of the Roosevelt Institute writes that in 1968, Congress allowed “regulations to prohibit buybacks, by defining them as fraudulent, deceptive or manipulative, based on their role protecting investors and the interest of the public.” Democrats have cited how stock buybacks increase wealth inequality and restrain a company’s capacity to “reinvest profits more meaningfully in the company in terms of R&D, equipment, higher wages, paid medical leave, retirement benefits and worker retraining.”
Here’s how powerful they are:
Activist funds managed more than $160 billion in 2015. For context, $58.8 billion were invested by venture capital across the U.S. in 2015.
Activism has had a huge impact on the world, from Toshiba to Campbells to DeutscheBank. (At least, on the share price of the firms they invest in in the short term.)
Now, SoftBank’s not perfect. We don’t want to defend them on Uber’s valuation or WeWork’s or any of their other investments via their Vision Fund. But are share repurchases the solution?
Some activist investors are waking up to the idea that you can’t just increase leverage (it’s been done), break up companies (it’s been done) or increase share repurchases (it’s been done) anymore. Check out Spring Fund, Jeff Ubben’s socially-focused activist fund that’s looking at how to use activism in the long-term (not short-term profit focused) to kick in terminal value in investments and do good at the same time.
Here’s a helpful guide on how companies can keep an ESG (Environmental, Social, Governance) agenda. And a paper on how investors can take into account other stakeholders and not just follow activists.
Keep tabs on Sen. Tammy Baldwin’s proposed legislation to curb share repurchases.
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