Standard Life Investments

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Shares Magazine - Activism - The Expert's View


Activism - The expert's view

Jonathan Cobb is governance and stewardship director at Standard Life Investments in Edinburgh.

'It is important to draw a distinction between activism and pro-active investing and stewardship. 'Activism' is a concept that is enjoying wider currency than previously and it is often associated with the alternative investment community and distinct investor behaviours,' says Jonathan Cobb, who is part of the ten-strong team dedicated to issues of corporate governance and stewardship at Standard Life Investments. 'For example, they will take a stake and then agitate for seats on the board or a change of strategy. You see this quite a lot in the US with some well-known funds and individuals who often appear on a share register after a period when a company's shares have been in relative or absolute decline.'

Cobb then explains 'activists' tend to look for absolute returns while a mainstream fund manager's mandate is often quite different. 'We are active investors in that we make portfolio decisions, taking positions on the basis of the opportunities available relative to the benchmark set by our clients. For 'activists', the benchmark is often the return relative to cash, which partly explains the way they behave and why we behave in a different way.'

That said, the experienced fund manager notes it would be unwise to caricature activists as nothing more than short-term performance jockeys. Cobb accepts activists are interested in the concept of stewardship and the manner in which a company is run, with a focus upon the additional value that can be released from a firm. 'They can often see a way to crystallise value left on the table by other investors, where a company itself may be amendable to an approach, and they take the opportunity presented by a lowly valuation relative to the inherent risks.'

Held to account

The Standard Life expert says there are two aspects to the concept of stewardship. 'First, company managers have an obligation to use and develop the resources of the company in a manner that creates sustainable long-term shareholder value. Secondly, investors should hold executives to account for their stewardship and also use their share of the equity capital to vote in an informed way.'

Standard Life is assiduous in how it votes shareholder meetings and the fund management group also holds regular face-to-face meetings with management teams. 'This enables us to hold companies to account for what they have been up to and judge the risk profile of the company and the opportunity cost of investing in that company versus another with a similar risk profile,' says Cobb. In this context, Shares notes with interest a report in the Financial Times newspaper which states Standard Life voted against [BOLD] Barclays' (BARC) remuneration report at the FTSE 100 bank's annual general meeting (24 Apr).

If Standard Life Invesments' money managers do not believe their interests are being served well, they will let a company know, although they will use different tactics from activists. Meetings are one forum used to express concerns and AGMs another and ultimately a stake can be liquidated, although any such decisions are not taken lightly. 'Selling is always an option,' accepts Cobb, 'but owing to the scale of our assets under management we can have big stakes and it is important to ensure value is being delivered to our investors.'

First Published in Shares Magazine in May 2014