Activist hedge funds and their goal corporations have been recognized to wage lengthy, costly proxy battles over board seats. However the administrators nominated by activist traders could not even have a lot of an impression, in line with a study from researchers at Iona Faculty and Sacred Coronary heart College.
In an evaluation of 1,874 activist administrators serving on public firm boards between 1994 and 2017, researchers Thomas Kushner and Khawaja Mamun discovered “scant statistically important proof” that administrators nominated by activist hedge funds “generate long-term worth for shareholders within the type of superior working efficiency and outsized month-to-month returns throughout their board tenure.”
The examine included 870 corporations that had been focused by activist hedge funds, and targeted on administrators appointed in session with activist traders, in addition to those that gained board seats by way of proxy contests. The latter path, the researchers famous, may be “intensive and costly,” just like the high-profile proxy battle between hedge fund Trian Partners and Procter & Gamble Co. in 2017.
“Trian spent as a lot as $25 million on their proxy marketing campaign to acquire a board seat whereas P&G is believed to have spent over $100 million to maintain them out of their boardroom,” Iona’s Kushner and Sacred Coronary heart’s Mamun wrote of their paper on the examine.
On common, they stated activist campaigns ending in a proxy vote value $10.71 million, citing a 2012 examine within the Journal of Monetary Economics.
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“Earlier analysis confirms activist hedge fund investments ship statistically important constructive working and market returns over particular time-periods,” the authors wrote. “We don’t discover these returns in our information pattern of activist director tenure.”
As an alternative, Kushner — whose LinkedIn profile reveals he additionally serves as managing director within the world institutional consumer group at Wells Fargo & Co. — and his co-author Mamun, whose LinkedIn bio says he’s an affiliate dean at Sacred Coronary heart, urged that hedge funds could produce other motivations for profitable board seats.
They stated the very public board appointments are used to sign talent in activist investing, which will help hedge funds win over traders.
“Hedge fund activism presents potential traders with story, and tales appear to be a vital a part of elevating cash from traders,” they concluded.