It's difficult to judge whether shareholder activism can create value since there are few examples that have gone through enough cycles- Ticino lawyer and investor Massimo Pedrazzini responds to a recent finews.com article, and rather than empirical evidence, he prefers to stick to the facts, he says.
Recently, finews.com published an article about the growing importance of shareholder activism in Switzerland, saying that «the investment returns of activists are not easy to assess» and that «skeptics keep pointing out that activist investments cannot beat the markets». To which I am now replying.
In the last 20 years, we have witnessed both in the United States and in Europe several «waves» of activist investors. Most of them have been involved in public campaigns and have therefore been at the center of serious debates about whether they are «vultures» or «angels», and whether they contribute to improving companies or have a negative impact.
Missing the Point
Investors and academics have tried to understand whether activist strategies generate value. In my view these recurrent discussions miss the point: shareholders can be active in so many different ways that the results of their strategies cannot be brought under a common denominator.
An activist investor whose strategy is based on public campaigns has nothing in common with those investors who choose a «behind-the-scenes» approach. And since the latter is often silent, investors, academics and the press ignore the existence of such activist investors.
Different Investors
An investor who pursues a short-term financial gain cannot be compared with an investor who follows an industrial logic. The impact of the former may be detrimental in the long term but may generate a quick return, while the impact of the latter may require more time to generate more substantial value. An investor who takes very small positions and «agitates the water» cannot be compared with an investor that commits significant financial resources and adopts a long-term, constructive approach.
On top, an activist strategy must be tailored to the characteristics of each specific company; small, mid, or large-cap companies require a different approach. The shareholder’s structure has also an impact on defining the strategy, considering that companies without a dominating shareholder function in a different way. Last but not least, the country of operations and of listing play a role as each market has its own laws, and rules but also «soft factors», which inevitably impact on strategy, duration of such strategy and expected return.
Comparable Universe Too Small
I believe that the only way to judge whether a specific activist strategy generates value is to follow a specific fund, that has consistently applied its strategy in a specific market, over a long time span and see what it has generated. Unfortunately, there are not so many activist funds that have a track record of more than 20 years and have been through several cycles. Therefore, the comparable universe is too small to reach a general conclusion.
I can only speak for Sterling Active Fund, which has been investing in the past 23 years in small-mid cap listed European companies with a long-term, constructive, industrial, activist approach, without leverage. The results are clear: our strategy has generated substantial value and outperformed comparable indexes. This may not be empirical evidence, but it is a fact.
Massimo Pedrazzini is currently Chairman of Fidinam Group, ST Group Holding, ST Real Estate Holding and the Sterling Active Fund. In 1985 he started his career at the Lugano-based law firm Tettamanti Spiess & Associati (later renamed Brunoni Pedrazzini Molino Mottis) where he became a Partner in 1993 until 2005 with a focus on contract law, M&A, corporate, international tax and financial law. During this period he advised industrial and financial companies in cross border joint-ventures and M&A transactions in Europe, Asia and America. He holds a Degree in Law from the Geneva University. Swiss and Italian nationalities.
