Activists AVI Global and Pershing Square go head-to-head

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Activists AVI Global and Pershing Square go head-to-head
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When two activist investment managers go head-to-head it can shine a light on the sometimes murky world of corporate governance.

Activist investors take a more hands-on approach to their holdings and often aim to work with their investee companies to unlock the hidden value. If this is not possible, such as where the two disagree, they will often go public and put pressure on the board of directors to change their strategy.

One firm that adopts this approach is Asset Value Investors, who run the AVI Global Trust (LON:AGT)(which changed its name from the British Empire Trustback in May). AVI focuses on a wide range of undervalued assets that are often ignored by mainstream investors, including family controlled holding companies, closed-ended funds, property companies, conglomerates and asset-backed companies. 

Public disagreement

They have recently had a very public disagreement over the strategy followed by Pershing Square Holdings (LON:PSH), a closed-ended hedge fund led by Bill Ackman in which they own a three percent stake. Ackman is a well-known figure who is no stranger to controversy, having made his name spearheading activist investor campaigns against a number of US companies, including Wendy’s Restaurants.

The dispute centres on the plan by PSH to issue $400m of 20-year bonds. Those close to Ackman say that this would enable them to refinance the fund’s existing debt at a more attractive rate.

AVI take a very different view and have branded the decision ‘outrageous’. They argue that selling the bonds would ‘materially constrain’ the fund’s ability to narrow the huge 30% discount between its share price and its net asset value (NAV) via share buybacks and have called on other shareholders to voice their disapproval.

In a letter to shareholders they criticise the ‘persistently wide and growing discount to NAV’, which they say ‘is even more remarkable given the company’s investment portfolio is comprised of large-cap, liquid, listed securities.’ They had hoped that the recent initiation of a small share buyback programme had heralded the start of a new approach by the board, but this decision to issue the bonds has more than offset it.

Adequate oversight?

Ackman’s investment management team owns 20% of PSH’s shares along with the associated voting rights, which makes it essential to have a strong and independent-minded board to act on behalf of the shareholders as a whole.

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However, AVI believe that the board is too willing to rubber stamp the investment manager’s proposals, which they say implies ‘either a failure to think through and understand the consequences of this debt issue, or an alarming disregard for shareholders’ interests.’

They point out that this steamrolling of shareholders is reminiscent of the proposed tender by Bill Ackman in early 2018, where the board failed to see the inherent conflicts of interest and were caught on the back foot when shareholders revolted.

PSH investors have suffered from poor long-term performance and AVI believe that they would benefit from a newly reconstituted board that is willing and able to defend and represent their best interests, and take credible action to reduce the huge discount. 

AVI Global, which rebranded in May to ‘more accurately reflect where the company invests’, has an interesting and differentiated mandate. Its performance has improved since Joe Bauernfreund took over as lead manager in October 2015 with a three-year share-price total return of 53%. The shares are currently available on a ten percent discount to NAV.

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