Conference Presentation, Panel, Fireside Chat
Activist Investors: Unlocking Value
Milken InstituteJustin Baer, Alex Denner, Ana Marshall, Ronald O'Hanley, Alex Roepers, Jeffrey Ubben
- Activist investing is expected to remain prevalent for an extended period following late 90s and early 2000s dormancy, driven by the rise of passive ownership which necessitates engagement to address principal-agent issues.
- A structural shift is anticipated toward operational activism as readily available "lazy balance sheets" diminish, signaling the industry's move to the "late cycle" of easy value creation opportunities.
- The industry trend favors sustainable, organizational change over transactional strategies to prevent short-term value destruction, with activists increasingly required to collaborate with passive investors to leverage their shareholding power.
- Directors are becoming more responsive to shareholders, though this poses a litigation risk if they reject short-term activism, while some CEOs actively seek activist involvement to bypass corporate inertia and gain "free consulting."
- Passive managers like Vanguard and BlackRock are expected to listen to activist proposals, granting competitive advantages to activist partners who possess organizational change skills, provided campaigns do not resemble "hit and run" tactics.
- Institutional investors face significant career risks if they support "hit and run" behavior that creates headline risk before long-term returns materialize, and may vote against activists making single-purpose transaction commitments.
- Constructive engagement is preferred over contentious situations, with "fact-based decision-making" tools like the Socratic method expected to depersonalize boardroom conflicts and facilitate better board compositions.
- Geographic expansion is forecasted with Japan identified as a near-term frontier where activists may use annual general meeting publicity rather than formal filings to motivate management, while China represents a potential opportunity roughly 10 years away.
- Companies are increasingly choosing to remain private longer to avoid control loss from short-term investors, while advisors are expected to play a critical intermediary role in aligning uninformed directors with investment bank perspectives.
- Long-term investment teams may achieve "nirvana" by compounding returns at 20% annually over a decade, prompting a strategic focus on portfolio construction to smooth performance and avoid the "pig in a python" effect of lumpy returns.