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ALPHA GENERATORS: The Proliferation of Activist Strategies

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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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China’s Central Bank Creates Macro-Prudential Management Bureau

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The People’s Bank of China (PBOC) created a new department to oversee and attempt to eliminate financial risks to the system. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Like its U.S. Peers, Legg Mason Seeks to Trim Costs

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Legg Mason Inc., a Baltimore-based asset manager, has announced a reduction in workforce as is prepares to streamline operations and save money. Legg Mason’s leadership commented that assets under management fell 5 % year-on-year. Legg Mason currently manages US$ 727.2 billion (as of December 31, 2018), which is down from the previous US$ 767.2 billion. CEO Joseph A. Sullivan noted that a global operating platform will centralize fund administration, IT, and other departments that work with affiliates. Sullivan did not discuss the number of layoffs expected, or specify which areas would be impacted. Legg Mason disclosed they planned to close a quarter of its exchange-traded funds in March 2019. These three ETFs include a U.S. strategy, emerging markets, and a developed markets strategy outside the U.S. However, these funds run around US$ 28 million in assets under management.

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Monetary Authority of Singapore Establishes Corporate Governance Advisory Committee

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On February 12, 2019, the Monetary Authority of Singapore (MAS) revealed the creation of a Corporate Governance Advisory Committee (CGAC). CGAC was formed to advocate for good corporate governance practices among listed companies in Singapore. Bobby Chin, Director of Singapore Telecommunications Limited, will be the Chair of CGAC. According to a MAS press release, “CGAC will identify current and potential risks to the quality of corporate governance in Singapore.”

MAS formed the Corporate Governance Council (Council) in February 2017. The Council was dissolved after it pushed out a publication of its final recommendations on August 6, 2018.

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