Roughly $45 billion in capital has been deployed in 124 activist campaigns globally in 2017 so far, nearly double the total for all of 2016, according to a report set to be released by Lazard on Wednesday.
"There is no company that is off limits," said Jim Rossman, managing director at Lazard. "A few years ago there might have been a view that some companies weren't reachable. There is no geography or sector that the activist won't go after."
Lazard, in its third-quarter review of shareholder activism, notes that there have been 124 activist campaigns at 111 companies in 2017 so far, compared to 152 insurgencies at 137 companies in 2016. The campaigns are taken from a pool of corporations with more than $500 million in market capitalization and includes U.S.-based activists and leading non-U.S. insurgents.
Rossman noted that the report represented the first time Lazard sought to identify how much capital activists have deployed in public and private campaigns, adding that the figure represented funds invested in a target company and not extra solicitation and legal costs investors employ for their insurgencies.
A related trend is that large U.S. activists are deploying more capital at large complex companies, such as Third Point's $3.5 billion allocation and campaign at Nestle SA and Nelson Peltz's similarly-sized insurgency at Procter & Gamble Co. (PG).
Rossman put a spotlight on billionaire Paul Singer's Elliott Management Corp.'s fund size and structure, differentiating it from the other leading activists in the U.S. and Europe. He noted that the fund has launched 12 new campaigns in 2017 so far and has $17 billion allocated to current activist positions, more than any other fund, in campaigns located on multiple continents.
"Elliott is everywhere," Rossman said. "They have teams on the ground in Asia, London and the U.S. Unlike the other activist teams that run in pyramid structures out of New York, or in the case of Cevian Capital or TCI or Knight Vinke, Sweden or London, Elliott is truly diversified and it has many more mid-level people who can pursue ideas."
Rossman also noted that CEO turnover at companies targeted by activists annually has averaged 23%, compared to 12% at companies not targeted by activists. In 2013, CEOs announced their departures at Avon Products Inc. (AVP) , Granite REIT (GRP.UN) , Mondelez International Inc. (MDLZ) and Tenet Healthcare Corp. (THC) , all companies with activists to contend with.
Rossman noted that U.S. activists are increasingly targeting large global companies, such as Akzo Nobel NV and BHP Billiton Ltd., even if they are set up in structures that make them "impenetrable," partly because they find that the companies have a large Anglo-Saxon shareholder base that may be amenable to the activist's assertions. "BHP is a dual-listed, national champion in two jurisdictions. You would think no one would target them. Doesn't matter," Rossman said.
In addition, large passive index funds are becoming more assertive. Rossman noted that State Street Corp. voted against nominating committee members at 400 all-male boards "because they disagreed with their approach to board diversity from a gender perspective."
Finally, the report also focused on the big index funds, Vanguard, State Street and BlackRock Inc., which are growing in size as asset shift from active managers to passive funds. Rossman pointed out that the influential group of passive investors now have larger teams responsible for governance and voting and that the teams are more sophisticated and willing to speak out on "some pretty interesting topics." The funds are "capable" of looking at hundreds if not thousands of companies to assess who is on the board, he said.
"The teams that used to have five or 10 people staffing the governance and voting at BlackRock and Vanguard are 30=person teams," Rossman said. "They have now undergone five years and hundreds of these attacks."
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