Multi asset investing: activism enabled

Multi asset investing at Thesis through underlying funds can enable us to be activist investors, influencing the underlying managers for the long term good of our own clients says Steven Richards, Fund Manager

Activist investing, once derided as pillaging for quick profits, can be seen as advocating for shareholders, compensating for the inertia of institutions that often fail to engage with investee companies. Institutional investors may just sell (even at a loss) underperforming companies.

Thesis is involved in the activist investment situation of Sherborne Investors and its stake in private equity company Electra plc, the board of which Sherborne believes should be better at driving returns. In contrast to activists who take short positions and exert a destructive downward force, Sherborne-style activism is constructive. It seeks appreciation in its stake and attempts to accomplish this through useful, productive engagement with company leadership.

Sherborne started building its stake when Electra's shares were trading at a discount of nearly 20% reflecting, in Sherborne's view, shareholder expectations of underperformance. Electra however was not an outlier in its sector and had respectable share performance.

Electra's share price rose strongly, largely due – ironically – to Sherborne's interest in it. When Sherborne held 19% of the company, head Edward Bramson proposed appointing three new board directors, himself included, to lead a strategic review. Electra rejected the proposal and Sherborne demanded a shareholder ballot.

Thesis, with its approximate 1% stake in Electra, was considered a 'marginal' voter that could influence the ballot outcome. I met with both parties to hear their cases and, in the case of Electra, to reprimand them for directly contacting our clients. As an appointed DFM we can take on administrative burdens like this, consider the implications, and do the right thing for our clients.

We voted in favour and, although the vote was not carried, Electra itself subsequently announced better terms for investors. The package was well received and Sherborne's stake – and our clients' too – has become even more valuable.

Still keen on changes to Electra, Edward Bramson pushed for another EGM at which Thesis will again vote in the best long term interests of our clients and not necessarily the board's recommendation.

 

 

Asset allocation name Attitude to Risk Risk Rating
Theisis model collective 3 of 7 Balanced 3.5
Theisis model collective 4 of 7 Moderately Adventurous 4.1
Theisis model collective 5 of 7 Moderately Adventurous 4.5

 

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For further information contact Lawrence Cook, Director of Marketing & Business Development, Thesis Asset Management T. 01483 406115 M. 07899 802048.