Don’t depend on shareholder activism being a passing fad – especially with three key catalysts sustaining it
A top firm is warning corporates to be prepared to weather shareholder activism, which is expected to keep gaining momentum and become a mainstay in the Australian market.
Herbert Smith Freehills said that the last few months have been an intense period of public activism, with a diverse group of corporates attracting attention. Partners Nick Baker, David Gray, and Priscilla Bryans, and senior associate Adam Charles, predicted in a note that public activism is about to emerge as a “prominent and enduring feature of the Australian market.”
Three factors will fuel shareholder activism’s longevity in the country, the firm said.
Cashed-up hedge funds will be seeking homes for their capital, which will only increase pure-play activism in the market. From 2010 to 2016, hedge funds have returned 8.57% on average per year and assets under management at activist hedge funds have grown from US$47bn to US$113bn, the firm said.
Furthermore, the Australian market is yet to see an influx of foreign activists, which may consider the country a more attractive environment to invest in. Between 2013 and 2016, just 14% of public activists in the Australian market had headquarters outside of the country.
HSF also said that the ranks of domestic activists continue to expand. Passive managers will sway domestic activism trends, more and more super funds will be increasingly willing to take activist stances, and individual investors will also join the fray.
Australia’s legal setup is conducive to activism, the firm noted. Shareholders who have 5% stakes in companies can demand meetings, for example. There’s also a 20% shareholdings ceiling for jointly-proposed board spills. Even the “two strikes” remuneration mechanism put in place by the Corporations Amendment Act 2011 can be used to pressure companies to negotiate activists’ demands.
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Herbert Smith Freehills said that the last few months have been an intense period of public activism, with a diverse group of corporates attracting attention. Partners Nick Baker, David Gray, and Priscilla Bryans, and senior associate Adam Charles, predicted in a note that public activism is about to emerge as a “prominent and enduring feature of the Australian market.”
Three factors will fuel shareholder activism’s longevity in the country, the firm said.
Cashed-up hedge funds will be seeking homes for their capital, which will only increase pure-play activism in the market. From 2010 to 2016, hedge funds have returned 8.57% on average per year and assets under management at activist hedge funds have grown from US$47bn to US$113bn, the firm said.
Furthermore, the Australian market is yet to see an influx of foreign activists, which may consider the country a more attractive environment to invest in. Between 2013 and 2016, just 14% of public activists in the Australian market had headquarters outside of the country.
HSF also said that the ranks of domestic activists continue to expand. Passive managers will sway domestic activism trends, more and more super funds will be increasingly willing to take activist stances, and individual investors will also join the fray.
Australia’s legal setup is conducive to activism, the firm noted. Shareholders who have 5% stakes in companies can demand meetings, for example. There’s also a 20% shareholdings ceiling for jointly-proposed board spills. Even the “two strikes” remuneration mechanism put in place by the Corporations Amendment Act 2011 can be used to pressure companies to negotiate activists’ demands.
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