Qui­etly, Funds Make a Push for Change

The Washington Post Sunday - - Sunday Briefing - By Tim Par­adis

NEW YORK — High-profile in­vestors such as Carl Ic­ahn have helped de­fine the im­age of ac­tivist share­hold­ers by storm­ing into com­pa­nies and push­ing for change. A less vis­i­ble type of ac­tivism ex­ists among some mu­tual funds, one that em­ploys quiet diplo­macy to press for change and boost a stock.

With the num­ber of global in­vest­ment op­por­tu­ni­ties grow­ing, many fund man­agers might sim­ply pass by a stock they con­sider a fixer-up­per. Oth­ers see op­por­tu­nity be­yond some blem­ishes.

“Our approach is we try to think and act like long-term own­ers,” said David Win­ters, chief ex­ec­u­tive of Win­ter­green Ad­vis­ers. “So much of the ac­tivism to­day is get­ting an event to hap­pen, mak­ing some money and sell­ing.”

Win­ters said he prefers try­ing to nudge man­age­ment in a cer­tain di­rec­tion rather than go­ing to bat­tle over changes.

“I’ve done it the other way, and we can do it, but we’ve found if we can be a long-term con­struc­tive part­ner of the com­pany, we re­ally like that approach,” he said.

In one such ex­am­ple, he has pushed Con­sol­i­dated-Tomoka Land Co., a Florida real-es­tate de­vel­oper, to re­con­sider the sale of some land near Day­tona Beach, and in­stead hold on to some prop­er­ties to cap­ture ris­ing val­ues. He con­tends that by push­ing for change and stick­ing with com­pa­nies that are open to sug­ges­tions, he is more likely to boost the re­turn of the Win­ter­green Fund, which has as­sets of about $721 mil­lion.

“If a com­pany has good man­age­ment, of­ten­times they’re re­cep­tive to good ideas. We’re con­scious of the time value of money, but we re­ally like to find sit­u­a­tions where time is our friend,” he said.

Some funds mainly fo­cus on com­pa­nies in need of makeovers.

“We’re look­ing for un­der­val­ued com­pa­nies with solid bal­ance sheets and free cash flow that may have stum­bled,” said Eric Hey­man, co-port­fo­lio man­ager of the Ol­stein Strate­gic Op­por­tu­ni­ties Fund, which opened in Novem­ber.

He said the fund looks for small com­pa­nies whose share­hold­ers could ben­e­fit, for ex­am­ple, from stock buy­backs, pay­ment of one­time div­i­dends or the sale of as­sets that are not an in­te­gral part of the busi­ness.

“A lot of com­pa­nies hit th­ese stum­bling blocks along the way,” Hey­man said, re­fer­ring to the growth of small com­pa­nies. “We work with man­age­ment in a co­op­er­a­tive way to trig­ger changes that will un­lock share­holder value. I would say most of the time, man­age­ment or the board is very will­ing to take in our crit­i­cism and move in the way we want to go.”

Hey­man said share­holder ac­tivism does not al­ways re­quire in­vestors re­sort to proxy fights and other high-profile means.

While some of the more pitched bat­tles for con­trol of a com­pany at­tract at­ten­tion, such as Ic­ahn’s well-pub­li­cized bat­tle for con­trol of Time Warner, the dust-ups can lead some mu­tual fund man­agers to look for other stocks.

Many man­agers are too busy to bother try­ing to bring change to a com­pany and can sim­ply move on, said Jeff Tjorne­hoj, an an­a­lyst at Lip­per, which tracks funds.

“It’s dif­fi­cult for a man­ager with 20 to 50 stocks un­der his purview to spend a great deal of time to bat­tle a CEO over a com­pen­sa­tion deal,” he said. “Sell­ing is their first op­tion and much fur­ther down the list is to be an ac­tivist share­holder.”

Some funds hold stakes in com­pa­nies that meet spe­cific in­vest­ment re­quire­ments and then push for changes at com­pa­nies that do not pass muster.

The six-month-old Blue Large Cap Fund and Blue Small Cap Fund in­vest us­ing ideals of­ten as­so­ci­ated with lib­eral po­lit­i­cal views, mea­sur­ing com­pa­nies by 10 cri­te­ria such as their en­vi­ron­men­tal stew­ard­ship and the gap be­tween pay of top ex­ec­u­tives and em­ploy­ees. The funds, which re­spec­tively in­vest in the stocks of Stan­dard & Poor’s 500 in­dex and the Rus­sell 2000 in­dex of smaller com­pa­nies, to­gether own about 450 stocks.

The omis­sion of the other stocks in the S&P 500 and Rus­sell 2000 means those com­pa­nies do not meet the fund’s stan­dards, said Daniel Adam­son, chief ex­ec­u­tive of the Blue Fund. But in­stead of ig­nor­ing them, the fund has helped spon­sor pe­ti­tions to push for changes at those com­pa­nies. Should suf­fi­cient changes oc­cur, Adam­son said, the funds would be per­mit­ted to in­vest in them.

“I think you can saber-rat­tle in any num­ber of ways. We’ve spon­sored pe­ti­tions signed by thou­sands of peo­ple who pledge not to in­vest in com­pa­nies with poor track records,” he said.

Adam­son said mea­sures such as pe­ti­tions do not dis­tract the Blue Fund from its in­vest­ment goals or cre­ate sig­nif­i­cant ex­penses.

“Ac­tivist share­holder res­o­lu­tions don’t need to pass in or­der to af­fect cor­po­rate be­hav­ior,” he said.


Bat­tles like Carl Ic­ahn’s for Time Warner can lead funds to look else­where.

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