Big funds push back against activist investor settlements

Mon Jul 18, 2016 3:21pm EDT
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By Michael Flaherty

(Reuters) - After years of support for companies that hand board seats to activists to avoid a bruising public fight, some of the world's largest institutional investors are pushing back.

BlackRock Inc (BLK.N: Quote), the world's largest asset manager, and Norges Bank Investment Management, Norway's $872 billion sovereign wealth fund are among the major funds resisting, encouraging companies to consult them before responding to an activist.

These investors argue that in certain cases, giving board seats to frustrated shareholders with a shorter-term investment horizon could jeopardize the company's long-term performance.

Activist investors, which Thomson Reuters data show launched a record 511 campaigns last year, are usually hedge funds that buy up a minority stake in a company they believe is undervalued, and push publicly for changes to boost the stock.

The most recent example of pushback against activist settlements involves U.S. retailer Chico's FAS (CHS.N: Quote) and Barington Capital, which sought to leverage its 1.6 percent stake to capture two board seats, including one for its founder.

The $100 million hedge fund ended its campaign on Friday, after realizing it could not win over enough institutional investor support for its nominees, according to people familiar with the matter.

In another case, BlackRock told the management team of Freeport-McMoRan Inc (FCX.N: Quote) that it was unhappy with its truce with billionaire investor Carl Icahn, which gave board seats to two of his young employees, the people familiar with the matter said.

The resistance is putting more pressure on activist hedge fund managers, who are struggling through volatile markets after years of index-beating performance.   Continued...

A taxi passes a BlackRock building in New York, United States, June 12, 2009.   REUTERS/Eric Thayer/File Photo