“Looking at the performance of activist managers convinced me that over time these people were able to enhance investor returns, and were doing everybody a favour by focusing on the worst areas of corporate governance and fixing them not only for institutions but for the general investment public,” Cole says. “It would be good to see some activist fund managers operating in Australia.” The profits reaped by Carousel and Weiss through their greenmailing (agitating for a preferential exit) of the LinQ Resources Fund showed the opportunities a domestic activist fund could exploit. In April, Sydney boutique manager Sandon River Capital quietly launched what is understood to be Australia’s first dedicated activist fund. Managing director Gabriel Radzyminski says for a market of Australia’s size and sophistication, with regulatory laws giving more power to Australian investors than their US peers, activism is appropriate.
It deploys “buy and do” strategies that can provide a more clearly defined return expectation than traditional plays, which Radzyminski says are “very much buy and hope”. “There is this spate of underperforming companies that represent significant opportunities but also significant amounts of work.” An emerging manager, Sandon River looks for small and micro-cap companies whose share prices are trading far below what are perceived to be their intrinsic values, and targets them if a viable strategy to increase their market value is clearly visible. “If you can’t see a good strategy to effect change, it’s a value trap.” Some strategies are as basic as implementing more effective business or communications strategies. Others involve catalysing changes at the operational, strategic or board level. Most require the influence of other shareholders. “We won’t look at situations where a solution is only available to us.
We look at solutions that are good for all shareholders, because we won’t have a long-lived strategy if we’re seen as being only out there for ourselves.” This rationale screens out any greenmailing tactics that only reward activists with a favourable payout and leave continuing investors with an underperforming asset. “The solution has to be available to everyone – like an equal access buyback, rather than a selective buy-back for ourselves.” The first hedge fund activists were corporate raiders who attacked companies, engineered asset sell-offs or greenmailed targets to snare a hefty payout. Hostile bids are still a valuable activist tool, but most contemporary managers drive changes to financial, strategic, corporate governance or operational direction from behind closed doors. Financial catalysts for change, such as share buybacks, special dividends or balance sheet restructurings, aim to improve the capital structure of targets and unlock more cash for shareholders.