May 9, 2019

Activism: Sometimes It Feels Like Somebody’s Watching Me. . .

Check out this truly wild “Institutional Investor” article about hedge funds’ use of private investigators to dig up dirt on executives of potential targets. Some of the tactics these investigators use definitely push the envelope – but “hokey smoke, Bullwinkle” what they sometimes find!

The article tells one story involving the president of a large U.S. asset manager who was discovered by investigator Peter Barakett to have been arrested twice for art theft. The guy even had one of the stolen paintings hanging in his office. He avoided prison only because the statute had run, but is still managing $2 billion of other people’s money. This excerpt reveals a few other eye-opening discoveries:

Another case involved a Bear Stearns executive whose murder conviction had previously gone undetected because, Barakett suspects, a casual background check either did not look at records in every state he had lived in or checked the wrong name or date of birth. “Our client [an asset manager who was considering hiring the man for an IR position] could not believe it, and we showed him the proof,” he recalls.

Work for activist hedge funds is a particularly revealing task, according to Barakett. “I’m never surprised by what we find,” he says, mentioning a public company executive who had a “wife and kids in one city, and another wife and kids in another city in another — nonadjacent — state.”

The article also makes it pretty clear that hedge funds won’t hesitate to use the information they find as leverage. I guess the takeaway is that when people say certain activist hedge funds take no prisoners, they aren’t kidding around. So, if you’re a public company CEO with any skeletons in your closet, you’ve now got something else to worry about when one of these hedge funds comes knocking. And I’m sure they wouldn’t have it any other way.

ESG: New York Comptroller Releases Decarbonization Panel Report

Okay, I served dessert as the first course this morning – now you’ve got to eat your vegetables. And by that I mean it’s time for a couple of very earnest ESG blogs that may make your eyes glaze over.  That’s ESG’s problem in a nutshell isn’t it?  Some people think that the future of humanity may hinge on what nations & companies do about some of this stuff, but so help me, the nuts & bolts of it are often more boring than C-SPAN.

Anyway, it’s my duty to report that New York’s Comptroller recently released a 38-page report containing the recommendations of the “Decarbonization Advisory Panel” that the Governor convened last year.  The panel was composed of experts from a variety of fields and was tasked with offering strategies for NYS’s Common Retirement Fund to use to identify, assess & manage the investment risks and opportunities of climate change.  The Comptroller issued a press release summarizes the panel’s recommendations, and this excerpt lays out some of the specifics:

– The Fund should establish a new climate solutions investment program and increase its funding of investments with a proactive approach to climate risk and opportunity.

– The Fund should establish minimum standards to measure the readiness of its investments for climate change impacts and the transition to a low-carbon economy. These standards may vary by asset class, sector of the economy or geography, but could be used to construct indices, evaluate managers, direct engagement and define exclusion from the Fund’s portfolio.

The press release also said that the panel did not recommend divestment of specific stocks, but said that setting minimum standards could guide subsequent divestment decisions and provide guidance to help the Fund avoid investment managers with non-sustainable operations and strategies.  The panel recognized that its recommendations would take time to implement, but encouraged the Fund to start working on a plan “with urgency.”

ESG: Not Just for Institutional Investors

ESG issues are usually considered to be priorities for certain institutional investors, but this Corporate Secretary article reviews a recent Allianz survey that says some of those issues move the needle with retail investors too.  Here’s an excerpt:

Respondents were asked to rate the importance of a range of factors when deciding whether to invest in a company. The two highest-rated issues both fall under the ‘social’ section of the ESG umbrella, with 84% of respondents pointing to ‘the impact of [the company’s] product/service on people’s health or well-being’ and 84% pointing to ‘workplace safety/working conditions of employees.’

The next two highest-rated factors are both governance-related. ‘Transparency in business practices and finances’ is cited by 81% of respondents, while ‘wages provided to their employees’ is important to 80% of those taking part. The top two highest-rated environmental issues are ‘natural resource conservation (such as water conservation, species conservation)’ at 76% and ‘[the company’s] carbon footprint/impact on climate change’ (69%).

The article acknowledges that companies face challenges in communicating information about ESG issues to investors. There are no uniform disclosure standards, an assortment of intangible factors to assess & often an avalanche of data to sort through.  It didn’t say anything about the need to tackle the “more boring than C-SPAN” issue though.

John Jenkins