The Activist Investor Blog
The Activist Investor Blog
Does Marty Lipton Even Read the Stuff He Writes, or Others Write for Him?
Perhaps when someone accumulates the seniority, wealth, and notoriety that Marty Lipton has, you can say anything that pops into your head or serves your purpose, however unfounded or slanted. Maybe some unfortunate associate writes his stuff for him based on what they think he thinks. He has a reputation this way.
Either way, Lipton must know and like his most recent screed, since he gave it as a speech last week to the World Economic Forum, the same plutocrats who gather in Davos each winter to talk circles around each other, ski, and drink. No mere attorney advertising-disguised-as-a-client memo, it hasn’t made it (yet) to the Harvard Law School corp gov forum, which regrettably publishes his random and half-baked musings for him. The Wachtell, Lipton website, popular mostly with company executives, does have it, so activist investors may not have seen it.
Lipton titles this most recent polemic “Is Activism Moving In-House”, which presumably asks a question, so it should have a “?”. Nowhere does he explain what it means for activist investing to “move in-house”. We also can’t locate a coherent answer to that question.
A painful read of the contents suggests Lipton asserts large institutional investors have become more activist. In this sense he thinks they rely less on proxy advisors (ISS, GL) for voting recommendations, and on activist investors (Trian, Pershing Square) for activist projects.
If he means to ask, “have large institutions become more activist?”, it’s an interesting and worthwhile question. He doesn’t answer it directly, much less cite any evidence either way. We considered it previously, and aren’t sure.
He immediately and dramatically departs from that question. We quote his first paragraph (emphasis ours):
Institutional investors, particularly the passive indexers, have outsourced oversight of their portfolios to ISS and Glass Lewis and for much of the past decade to activist hedge funds. The result has been enormous profits for activist hedge funds that have attracted investments of more than $200 billion and are now considered an asset class for investment purposes. Concomitantly, in order to lower their profile to activists trolling for targets, virtually every public company has followed the advice to “manage like an activist” and reduced capital expenditures, research and development, employee training and employment. Activism has become a very significant drag on the economy and a threat to the long-term health of the Nation.
Lipton then gives a wet sloppy kiss to BlackRock and Vanguard, whose CEO letters he quotes at length. He also rehashes numerous conclusions from earlier attorney advertising memos, mostly about DuPont and Trian. He concludes, “I’m more comfortable that the influence of the major institutions will be more favorable to the Nation’s economy and society than the self-seeking personal greed of the hedge fund activists.”
He insults investors everywhere, more than a few corporate leaders, and any thoughtful observer:
❖Have institutions “outsourced oversight” of entire investment portfolios, or merely retained an advisor on shareholder votes?
❖Have institutions outsourced anything to activist hedge funds? much less since 2005 or so?
❖Have activist hedge funds made “enormous profits”? Not lately...
❖Has every public company started to “manage like an activist,” and cut capex, R&D, and training? We think not.
❖How can $200 billion in activist AUM, an immaterial share of total US equity assets, slow down the entire $17 trillion US economy and threaten our “Nation”? Alarmist baloney like this serves no one well.
Above all, Lipton prefers institutional investors to activist investors. And, at least for now, the likes of BlackRock and Vanguard remain rather corporate.
Long-term, we think they will evolve to support activist strategies more. Both BlackRock and Vanguard, and many other huge institutions, meet with and vote for activist shareholders more than ever.
In other words, Lipton and his clients should be careful what they wish for.
Tuesday, September 1, 2015