ALPHA GENERATORS: The Proliferation of Activist Strategies
As part of our Chasing Alpha series, SWFI is covering the proliferation and adoption of activist strategies. Increasingly, sovereign wealth funds (some of the biggest) and pensions are allocating more capital to activist managers, eyeing historical outsized returns over long periods of time. Despite notable activist managers getting “smoked” in performance in August and September such as Bill Ackman’s Pershing Square Capital Management, David Einhorn’s Greenlight Capital and Leon Cooperman’s Omega Advisors, the rise of assets in these strategies has maintained momentum post-financial crisis. Hedge fund activists funds, once known as corporate raiders or one-trick ponies, are estimated to be over US$ 200 billion in assets compared to US$ 10 – US$ 15 billion a decade ago. Publicly-traded companies like Samsung are on watch. Without regard to size or industry, major companies such as Apple, Yahoo, Transocean, Qualcomm and eBay have been in the crosshairs of activist investors. JANA Partners, which is run by Barry Rosenstein, has repeatedly moved to affect change at semiconductor company Qualcomm as the company continues to fall in share price. JANA Partners, which oversees US$ 11 billion in assets under management, is trying to urge Qualcomm management to increase share buybacks and cut costs. Another prime example is billionaire hedge fund manager David Tepper who runs Appaloosa Management L.P. In November, Appaloosa Management holds senior notes and shares in Bethesda-based TerraForm Power, a diversified owner of clean power generation assets, such as wind and solar, in markets such as the United States and Canada. Tepper penned a letter criticizing SunEdison’s “cozy” relationship with TerraForm Power, specifically accusing SunEdison of pushing unattractive energy projects onto TerraForm Power. These are known as drop-down transactions.
According to SWFI research, around 45% of hedge fund activist capital comes from pension and sovereign wealth fund investors.
Long-Term Capital: Sovereign Funds and Pensions
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South Korean financial giant Shinhan Financial Group Co., Ltd. reached a preliminary agreement with KKR & Co. to form a series of global buyout funds that could raise up to 5 trillion KRW. KKR and Shinhan signed a Memorandum of Understanding (MoU) in Seoul in early October. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
There was speculation that Norway Government Pension Fund Global (GPFG) could be managed outside of Norges Bank. The Norwegian government shot down this idea and recommended Norway’s GPFG remain in Norges Bank. This recommendation came in the form of a white paper submitted to the Norwegian Parliament, Stortinget.
Norway’s Minister of Finance Siv Jensen, commented in a press release, “The Government proposes a new and modernised governance structure for Norges Bank. Moving forward, this new structure lays the foundations for the sound management of the central bank and of the GPFG.”
Some Central Bank Recommendations
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Invesco Ltd. signed a deal to acquire OppenheimerFunds, Inc. from Massachusetts Mutual Life Insurance Company (MassMutual). In turn, MassMutual and the OppenheimerFunds employee shareholders will receive a combination of common and preferred equity consideration, and MassMutual will become a significant shareholder in Invesco, with an approximate 15.5% stake. This strategic transaction will bring Invesco’s total assets under management (AUM) to more than US$ 1.2 trillion. The transaction is expected to close in the second quarter of 2019, pending necessary regulatory and other third-party approvals. The transaction gives Invesco access to more third-party distribution platforms.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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