Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Chapter 15

Institutions Behaving Like Activist Hedge Fund Managers

Instead of allocating capital to activist hedge fund managers, some institutions simply are buying large stakes and actively pressing companies on their own. We have seen institutions become actively involved by urging companies to remove poison pills and staggered boards. Also, as we have discussed, many institutions will join forces with other institutions and activist hedge fund managers to form a group in an effort to press for changes such as breaking up deals or seeking to remove directors and CEOs. But very few traditional institutional investors will, or are permitted to, buy a large block of shares and engage management on their own in an effort to provoke some sort of serious response (i.e., proxy contest).

Some exceptions to the rule are divisions within Canada's Ontario Teachers' Pension Plan (OTPP) and Hermes Pension Management Ltd. The State of Wisconsin Investment Board's small-capitalization portfolio buys between 5 percent and 10 percent stakes in small public companies and at times engages executives in private. In 2006, CalPERS also moved a step closer to doing its own governance-style activist investing. It allotted $600 million to invest alongside some of the activist investors it has funded. The public pension fund had been testing the approach by partnering with Relational, for example, Whitworth says.

But Canada's OTPP is unusual, in part, because of the rules, regulations, and historical ...