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Peak rant

13 March 2015 By Richard Beales

Bank of New York Mellon is under fire. Again. Marcato Capital Management is gunning for Gerald Hassell, chief executive of the $44 billion U.S. financial institution. That’s after Nelson Peltz’s Trian, armed with a similar critique, already secured a board seat. Activism is starting to look like a crowded strategy.

Sotheby’s – where Marcato’s investment preceded that of activist hedge fund Third Point, whose founder Dan Loeb now sits on the auctioneer’s board – and Darden Restaurants are among the other companies recently beset by multiple agitators. Sometimes, as with BNY Mellon, they broadly agree on the target’s shortcomings, if not how to fix them.

Aggressive investors force companies to examine their capital allocations, governance and management and to make changes, including buying and selling businesses, which can boost market valuations. As long as the benefits reach all shareholders, the cage-rattlers help bridge the gap between companies and dispersed owners. In that sense, the more the merrier.

Too much clamor at once, however, can distract from sensible initiatives already under way. Marcato’s 118-page critique of BNY Mellon shows that the firm run by Mick McGuire, a protégé of activist headliner Bill Ackman, conducted detailed analysis. That doesn’t mean it adds much to what the bank’s board already knows.

Efforts by Ed Garden, Trian’s representative on BNY Mellon’s board, other directors and the current CEO to identify practical solutions for the basic problem – expenses growing faster than revenue – probably are supported privately by big investment institutions, at least for now. That may matter more than Marcato’s very public contribution.

It’s all a warning sign for investors in activist funds. They’ve done well of late, collecting 21 percent in 2012 and 16 percent in 2013 on average, according to Hedge Fund Research. Even last year’s anemic 6 percent return beat the hedge fund industry average. Yet despite huge gains in 2014 for Ackman’s Pershing Square Capital Management, among others, HFR’s figures for average activist performance have been declining in absolute and relative terms since the 2012 peak.

More than 200 practitioners made demands of almost 350 companies last year, according to Activist Insight, in each case approaching three times the number in 2010. More and more cash chasing a dwindling number of good investment ideas may before long turn fund investors into the agitators.

 

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