The Australian market is ready for a bout of US-style corporate activism, coordinating agitation against individual companies for change to generate bigger shareholder returns.
“We believe it is a matter of time and size before the largest superannuation funds (partnering with hedge funds) embrace activism,” says Credit Suisse in a note to clients.
The Australian stocks which could be targets of a partnered campaigns by hedge fund and superannuation activists include BHP Billiton, Caltex, CSR and Woolworths.
Activism has developed into an investment strategy in North America where big funds have around $200 billion each and have delivered more than 7% a year for the last 10 years.
Credit Suisse says the economic opportunity for activism seems even greater in Australia than the US but remains in its infancy here.
“The explicit support of the large superannuation funds is required for activism to take hold in Australia,” Credit Suisse says.
“The largest pension funds in North America have formal strategies and partner with hedge fund activists on campaigns. The largest superannuation funds are yet to consider activism to the same degree.”
Here are the superior returns from activism:
Australia has many of the conditions supporting activism including the right corporate laws.
Shareholders with more than a 5% stake can call a general meeting, seek the removal of directors, nominate directors and put forward shareholder resolutions, all of which will support shareholders agitating for change.
The introduction of the Two Strike Rule in 2011 means that shareholders can show their disagreement with a company’s management when it involves executive or board pay.
The campaigns against companies in North America have often been to get an improvement — to sell an asset or improve capital structure — as well as to campaign against a board of directors, a chairman or CEO.
Recent campaigns have been against Pepsi and McGraw-Hill.
“We look forward to the giants of Aussie funds management to play a leading role in agitating for reform in the corporate sector,” Credit Suisse says. “In the long-term this will be a good for all Australians.”