Third Point LLC celebrated 20 years of +20% returns last June, so for his firm’s second quarter investment letter, Dan Loeb decided to extol the virtues of activist investing, from its importance in the capital markets to its contributions to the American economy.
While taking a swipe at Larry Fink and a few other people, of course:
Lately, a varied chorus of powerful union bosses, politicians and candidates, an asset management company executive, and a few ivory tower types have asserted that activism is short term in nature, engaged in by “hit and run” investors who care only about making a quick buck while leaving a company and its employees in ruins. They assert that activists blackmail their targets to choke off long-term growth initiatives like research and development in favor of financial gimmicks that artificially and temporarily inflate share prices.
It might surprise people to hear that we agree completely that the sort of activism they describe is abominable. Luckily, it does not really exist, and certainly not at Third Point.
According to Loeb (h/t ValueWalk), activists today are vastly different from the raiders of the 80’s, adding that his firm’s investment durations far surpass “the one year threshold identified as offensive by the critics,” that he installs rock star CEOs such as Marissa Mayer with “extensive runway to implement ambitious turnaround plans that would take years to come to fruition,” and that he may have some fans in the upper echelons of world politics:
Not every politician is a critic. As you may recall, the case we made for good governance, and implicitly activism, in Japan two years ago was later adopted by Prime Minister Abe and his policy makers to successfully encourage economic momentum and wage growth. His approach has been a success, as better corporate governance principles have led companies like Fanuc to adopt more shareholder friendly approaches and led to increased foreign investments in individual Japanese companies and the overall market.
He also points out that they’ve opened a position in Japanese auto manufacturer Suzuki, saying that while it’s problems with Volkswagen hurt it a lot, it’s Indian subsidiary, Maruti Suzuki should make up for that.
As for his critics, this is what he had to say:
We are proud of the returns we have generated from being engaged, constructive, and sometimes “activist” investors, and even more so that our activities have led to more efficient organizations that are better able to compete, grow, and innovate. We hope the critics will educate themselves about how activists contribute to the American economy.
Photo: janelle