When a shareholder obtains a stake in a company that is not performing to its potential, that shareholder has entered the world of activist investing. The company may be rundown, mismanaged and/or undervalued, but as a stakeholder, that shareholder can typically influence managements and boards to effect change and increase value in the company. “We are always proactive in letting the management or board know what steps we believe they could take to improve shareholder value,” said Peter Puccetti, chair and chief investment officer of Goodwood Inc., at the National Club in Toronto yesterday.
Puccetti said Goodwood operates between the passive/active investing sphere, relating problems to a management or board in private, and the active sphere, voicing concerns publicly and acting on ideas for improvement. “On occasion,” said Puccetti, “we may have situations that lend themselves to full-blown activism.”
One full-blown activist, the Ontario Teachers’ Pension Plan, has currently $4.8 billion invested in activist investments. Teachers’ has a pragmatic, diversified approach to this type of investing, said senior vice-president Brian Gibson. It looks at various kinds of options such as recapitalizations, industry rationalization, change of strategy, change of managements/boards or a new focus. But remember to let the company take the credit, he said. “Success for us is getting the job done and earning the returns.”
But the returns that go up, may, at some point, come down, or may not even go up for those first few years. But that doesn’t mean you bail. “You need to be able to take a couple of years of poor results,” Gibson said. “You can’t just cut and run when things get tough. It’s not great for your reputation.”
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