Fundraising: Shareholder activism

Disruptive shareholders in public vehicles can pull focus and capital away from fundraising. Sherborne Investors, activist shareholders in London-listed Electra Private Equity, was able to muster sufficient institutional backing in November to secure two seats on the board of the listed investment trust. Sherborne’s victory – the appointment of its nominees Edward Bramson and Ian Brindle to the board – was won in the face of stiff and prolonged opposition from the Electra board led by its then chairman Roger Yates.

In January the activist investor’s key demand – for a ‘strategic review’ – was met with as yet unknown implications for its investment strategy.

With shares trading at a typical discount of about 20 percent to their net asset value, listed vehicles, including trusts and fund feeder vehicles, are vulnerable to activist investors that can demand unforeseen changes to their investment strategy. In the case of feeder vehicles, this has potential ramifications for underlying funds and their capital raisings.

Another London-listed private equity investor, SVG Capital, spent £167 million ($237 million; €211 million) in the last financial year defending its share price through share buybacks and tenders. Secondaries firm Coller Capital, which acquired a significant minority stake in SVG in 2009 through a rights issue, has actively challenged its leadership and its strategy in the past.

In 2012 Coller demanded the company return proceeds rather than make new commitments in line with its revised strategy to diversify away from solely Permira funds. Shareholders ultimately sided with management and SVG made its first diversified investment, a €100 million commitment to Cinven’s Fifth Fund in 2013.

Listed management firms, which do not typically trade at a discount, have also started to take steps to redress rapid share price drops. Apollo Global Management, Carlyle Group and KKR, have all announced share buyback programmes.