Pioneers of "shadow activist" investing
This situation has a negative impact on all shareholders, but few investors are prepared to act. One exception are ‘activist funds’ that take a ‘private equity’ approach to the public capital markets and act as catalysts for positive change that benefits all shareholders.
Shareholder activism has developed into a globally successful investment approach over the last two decades and forms an important counterweight to the increasing trend towards passive equity strategies. However, traditional activist funds face challenges such as lock-ins through board representation, limited diversification opportunities due to their size and investment philosophy. These funds are also often only accessible to large institutional investors and require capital commitment periods of 3 to 5 years, which limits investor flexibility.
The ‘Shadow Activist’ strategy builds on the alpha generation of traditional activist funds. It implements a concentrated portfolio of the most promising activist campaigns while at the same time preserving liquidity for investors. While traditional activists often actively engage in company boards to drive complex change processes, ‘shadow activists’ follow these campaigns while always retaining full flexibility in portfolio construction. This flexibility enables investors to have constant access to liquidity.
Shadow activists also realize more efficient capital commitment cycles. While traditional activists often invest in individual companies for years, shadow activists select companies where there is a high probability that the market will promptly price in the full value enhancement of change program in the share price even before it has fully materialized. Further details on the ‘S-curve of activist campaigns’ developed by AVP can be found here: https://www.youtube.com/watch?v=y0NsdH4jqIc.
The current economic uncertainty in Europe offers activist funds attractive entry points to generate significant alpha in the coming years. In addition, the more attractive valuation level in Europe compared to the USA has led to numerous European companies being targeted by activist funds in the last 12 - 18 months. According to Lazard's Activist Monitor, there were almost 70 new activist campaigns in Europe last year - an increase of 15 per cent compared to the previous year and a new record.
Successfully implementing a shadow activist strategy requires a deep understanding of how activist funds operate in different European markets, as well as experience in assessing campaigns that have the potential to increase shareholder value in a timely manner. AVP's team brings over 15 years of experience in implementing activist campaigns in Europe, complemented by in-depth knowledge in the design and implementation of corporate change processes. This background enables AVP to carry out an independent analysis of all European activist campaigns and to dynamically integrate these findings into the portfolio construction process.
