Governance for Owners CEO Stephen Cohen argues there is a role for asset management in the space between support for good causes and the ruthlessness of vulture funds.
SRI (socially responsible investing) is now almost mainstream, since no organisation would brand its activity as ‘socially irresponsible’. ESG (environmental, social and governance) principles are widely accepted as a positive set of a corporate values an investor might want to adhere to. Now add to these, Relational Investing.
Governance for Owners (GO) uses the phrase to describe how it works as a responsible activist investor and asset manager. Its activities are directed through two long-only mid-cap equity funds, the GO European Focus Fund and the Japan Engagement Fund (JEF), the latter launched in March 2012.
The other part of the London-based firm, which has some $1.1bn assets under management, offers institutional investors stewardship services, including advice on voting and engagement with quoted companies worldwide. CEO Stephen Cohen, a veteran of Mercury Asset Management in the 1980s, Putnam’s MEMEA business Zurich Scudder, and the Russian hedge fund manager Troika Dialog, joined in June 2012, succeeding founder Peter Butler.
“The Governance for Owners idea was to identify interesting listed businesses, essentially sound from an operational and product point of view, but undervalued for some reason – and then engage with the management to address the reason why,” Cohen (pictured) says. “It may be simple – investor relations, or appointing independent directors to the board, or remuneration policies. Or it may be more strategic or financial, about the nature of the core business.”
GO, with a team of 30 and offices in London, New York and Tokyo, and associates in Sydney, Abu Dhabi, Singapore and Cape Town, believes corporate as well as investment skills are needed for relational investing. It has access to both worldwide. Analysts undertake at least three months research on any target stock, to a degree usually only conducted by private equity investors.
The GO fund will then buy a small stake (around 1%), and begin the process of engagement. “We have to see if the company is willing to listen,” explains Cohen. “The early stake is just to say: ‘We are serious, we are alongside you as a shareholder’.”
The typical investment horizon of the funds is three years. “At that point we may own between 3% and 6% of the company, which is a material holding, but not a threat. At 5% we can of course call an extraordinary general meeting, but we don’t usually want to. If we have to, we have failed and the engagement process is not working.”
“When you sit and talk to most managements, they know their business. We are not banging the table and it is a completely private discussion,” Cohen adds.
The combination of careful stock selection and the value added through relational investing based on ownership rights delivers the uncorrelated alpha sophisticated investors seek. The GO funds are only marketed to institutional-type investors who can appreciate, or perhaps afford, the time it takes to effect changes.
Cohen admits some companies don’t want to engage, at which point GO moves on to other prospects. “The intensity of the research and engagement limits the number of holdings, so we have a very concentrated portfolio of about 12 core positions, maybe one or two side investments, plus a few we are selling out of.”
Current investments in the public domain include Cookson Group (UK), JazzTel (Spain), Viscofan (Spain). Prior investments include Amer Sports (Finland – owner of sports brands such as Wilson, Salomon skis).