Locusts Will Swarm Over Europe Again

Activist investors are among the main victims of the financial crisis. These are investment funds that buy minority stakes in listed companies with the aim of obtaining high returns by augmenting their value via radical changes in the way they are managed. Often such changes, usually concerning either corporate strategy, the financial structure or the sale of a non-core asset, are accompanied by the request of change at the company's top and renewal of the company board. This means that such investors are unwelcome by the top management of targeted companies, and, on the other hand, that whenever the questions they raise fell on deaf ears, activist investors are ready resort to anything legally possible to make their voice heard. Hence, the term of " activist" investor. The activists' weapons of choice vary in type and intensity. In some cases, activist investors manage to influence business choices by meeting with management behind the scenes. In other cases, noisier campaigns are deemed necessary. These include public statements, media involvement, criticism raised during shareholders' meetings, and finally, an outright to war to secure shareholders' votes. Activist investors have been behind all the financial dramas of the last two decades on Wall Street. In Europe, activist investing is a relatively recent phenomenon. The case that's usually cited is the activism of the TCI Fund targeting ABN-Amro and leading to the subsequent takeover of the Dutch bank. In Italy, the (failed) activism of the Algebris Fund targeting Generali is probably the most well-known case. Activist funds have run against the grain in Europe, where closed proprietary structures are much more frequent, and management is often impermeable to criticism coming from the outside, since the expression of investors' opinions is usually regarded as an undesirable intrusion into managerial prerogatives. Also politicians have lashed out at activist funds, with an SPD party chief famously calling them "locusts". European managers and entrepreneurs have thus rejoiced at the downsizing of activist funds in the wake of the financial crisis. These funds have been hit by mass withdrawals and have posted the worst performances in the asset management industry. But this could be due to the fact that activist investors usually target underperforming companies. And these tend to be the companies which have been worst affected by the crisis, thus further depressing the financial value of the stakes held by activist funds.

The news of the death of investment activism is probably premature. True, they have less ammunitions than before the crisis, but their criticism has more often than not been right on target. As soon as liquidity returns on markets, and institutional investors stop being passive in their voting behavior, Europe and Italy will be hit by a wave of financial activism once again.