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In association with Hedge Fund Intelligence |
In an age when venerable names such as Sears have been taken over by hedge fund managers such as Eddie Lampert, the investing public in the US has pretty much got used to the idea that hedge funds have arrived as a big factor in the life of corporate America.
But this is still not yet the case in Europe, where the battle over the future of Dutch banking group ABN Amro has been making such big front-page news in the Financial Times and other journals.
In Europe, and especially in such markets as Germany, there is still a sense of shock and disbelief that big local companies appear to be suddenly at the mercy of a hitherto mysterious community of hedge funds. There is undoubtedly an element of truth in such perceptions.
Private equity
The reality is, of course, more complex. Hedge funds, now armed with more assets and a more assertive approach, are playing an influential role as catalysts driving change in corporate Europe. But they are far from being the only actors. Indeed, many of them are being supported by traditional shareholders, who have been persuaded of the need to seek greater shareholder value. A key part of the overall picture is the private equity community, also armed with a new wall of money to put to work.
The drive for change at ABN has been led, appropriately enough, by Chris Hohn and his team at the Children’s Investment Fund, seen by many as the poster child of modern European hedge funds. TCI led the bitter fight in 2005 to change the strategy at Deutsche Börse – heading off a potentially costly acquisition of the London Stock Exchange and ultimately delivering tremendous gains for investors.
TCI’s lead in seeking change at ABN has been enthusiastically followed by other big hedge funds in Europe, such as Toscafund, the $5 billion-plus financial specialist headed by former Tiger man Martin Hughes. In confirming it had taken a 1% stake in ABN, Tosca was at pains to stress that it should not be seen as acting in concert with TCI or other shareholder groups. “Toscafund wishes to make clear that it is a passive, independent investor and is not aligned to any other investor, or group of investors, in ABN Amro,” it said in a public statement.
The notion that a close-knit group of hedge funds can suddenly decide to gang up on a company – with deleterious consequences for other stakeholders, such as employees, as well as longer-term business prospects – continues to be a widespread negative perception that the hedge fund industry struggles with in Europe. The idea that hedge funds can combine in a secret ‘concert party’ out to make a quick buck was indeed alleged by some in the Deutsche Börse case, who saw other funds following TCI’s lead and using very much the same language.
It is one thing to suggest that different hedge funds can and do arrive at a like-minded view, but quite another to conclude there is some sort of conspiracy. For one thing, hedge fund managers are mostly smart enough to know the rules on acting in concert and not to infringe them. But, most important, everybody needs to remember that the muscle brought to bear by hedge funds – larger though it now is – is still simply not enough to dictate to the largest corporations. Big hedge funds can certainly take significant stakes, but from there they still rely on persuasion to get other shareholders on board.
This much was underscored in comments made by Tosca when it announced its interest in ABN. “It is evident that over the past five years, the management of ABN Amro has failed to deliver acceptable returns,” a Tosca spokesman said. “Accordingly, we also believe that all the stakeholders would benefit by way of a merger with another large group that has a proven track record in adding value.”
Identifiers
The ultimate outcome, however, depends most critically on what the majority of other shareholders view as the best course for ABN. And the key role played by TCI and other hedge funds has been to identify the source of dissatisfaction in the first place – and the need for change – not to dictate what the eventual change will be.
Event-driven strategies in Europe – activist and/or passive – have generally been very successful in recent years. And there is still a lot of excitement among investors about the prospects in a market that seems ripe for yet more M&A activity in the years ahead.
But the very fact that Europe is much less of a single market than the US – with vested interests protected by what is still an uneven set of regulatory schemes – means there is still a long way to go. More battles lie ahead, and the power of persuasion will be a major part of them.
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In association with Hedge Fund Intelligence |
