- REUTERS/Omar Sanadiki
Activist investors have their sights set on household consumer names.
That’s according to Goldman Sachs’ global cohead of consumer retail and healthcare banking, Kathy Elsesser.
She spoke about activist investors, who take stakes in companies and agitate for change, on a Goldman Sachs podcast released on Wednesday.
About 25% of all activist campaigns last year were targeted at consumer-retail companies, Elsesser said – partly because of name recognition and partly because their performance is generally pretty stable.
Kraft Foods, Procter & Gamble, and PepsiCo have attracted the attention of activist investors, including Bill Ackman, Carl Icahn, and Nelson Peltz, for example. Macy’s, too, has come under fire – from Starboard Value’s Jeff Smith.
And while the last quarter of 2015 saw some $3 billion in outflows from activist hedge funds, Elsesser said, they still continue to raise large sums of money.
She also pointed to a “generational shift” among mainstream, long-only investors who would suggest that activism is here to stay.
Elsesser said that regular portfolio managers are starting to side with activist rabble-rousers – and to think about engaging with companies as part of their roles, rather than just selling a stock when they are dissatisfied with performance.
“This provides a bedrock of support for the activist funds and means that activism is now really embedded within the mindset of those core investors,” Elsesser said.
Essentially, she said, as the markets become more correlated, investors are finding that they can create a near-term event – like compelling companies to boost dividends, buy back stocks, or consolidate with competitors – in order to outperform the market and boost returns.
- Goldman Sachs
That, of course, creates near-term pressure on the companies.
“It’s a really tough judgment call as to how much capital should be put back into the business for the long-term versus supporting stock prices in the nearer term,” Elsesser said.
Goldman’s head of M&A Shareholder Advisory, Steven Barg, recently pointed to a similar phenomenon in a Q&A the firm shared.
“The distinction between who is an activist and who is not is becoming increasingly blurred and less relevant overall,” he said.
“More mainstream investors, including index funds, are engaging with boards and management teams,” said Barg.
In other words, we’re in “an age of more active and sustained engagement” between boards and shareholders, as activism becomes more mainstream.
And in Elsesser’s view, that’s something we’re going to have to get used to.