Predatory Value Extraction

[touzi]

http://www.straitstimes.com/opinion/the-...er-clinton

Those cheering the arrival of activist shareholder might want to take note:

The power of institutional investors to extract value has increased lopsidedly because US financial regulations were substantially revised in the 1980s and the early 1990s towards strengthening their power. US regulators were heavily influenced by the rhetoric of institutional activism and, ignoring the reality of the rapidly growing power of institutional investors, treated them as weak "minority shareholders" who should be allowed to act together to challenge "autocratic corporate management".

Currently, activist hedge funds are an investor group that exploits this gap between financial regulations and the actual power most effectively for their own profit. Buying a small fraction of outstanding corporate shares, they criticise incumbent management and request restructuring and cash disbursement to shareholders. More often than not, other institutional investors and proxy advisory firms support their claims. "Wolf pact attacks" and "co-investments" have rapidly become a convention in the US stock market. It is worthwhile to note the fact that the acceleration of predatory value extraction from US corporations coincided with the rise of hedge-fund activism in the middle of the 2000s.

[specuvestor]

Swinging to the extremes are rarely beneficial. Investors are usually not businessman and tourists should not dictate directions

In general I agree businessman are better than financiers, if and only if their structure shares fruits with shareholders. And in general I think harsher penalties and more clauses for minority oppression redress is better than activist investing because these activists are the same financiers which you 2nd rate and looking at short term equity gains rather than business development like a businessman.

http://www.valuebuddies.com/thread-457-p...#pid114835

[opmi]

you can have all the minority oppression laws, but if no one to take lead and pay legal fees to take actions, also no use.

so you need these self-interested funds to rally the minority investors (retail and institutional). like I said before, minority investors are passive free-riders.
dont expect them to do anything. most dont have enough incentive to take action. Will just sell or get bought out in a lowball offer.

[specuvestor]

Actually if we look at US class action regime, minorities will take action if they think there is chance that they can make a difference with minimal cost. In Singapore that threshold is usually 10% shareholding. Nobody wants to spend time on anything with almost zero outcome.

I don't support a litigative society but I think we should shift to the middle and allow shareholders greater say eg propose independent directors or auditors or FA within similar cost range during AGM which majority shareholders (say >30% stake) cannot vote, directors personally liable for minority oppression (say up to 3X their annual directors' fee), etc then incentives will change.

[opmi]

from the movies (hahaha), class actions are usually done by lawyers on success fees basis. if someone is paying, everyone wants to free ride...
someone have to take the initiative...lawyers are proactive in class actions suits.

for 10% threshold, CPFIS account holders are the biggest owners of SGX blue chips, collectively. If you gather them collectively, plus institutional funds, Wee CY also scared.

[Big Toe]

Looking at Kingboard copperboard currently, the outcome is much to be desired.
It MAY turn out to benefit the minority shareholders eventually, but the wait is at best, very very long.
In the meantime, while the business remains sound, earnings and dividends get screwed big time.
Management's way of showing a middle finger (btw,they get paid for it), and it is totally legal.

Generally, there are too many ways for the management to extract value away from a listed company.
I.e. Trump casinos went belly up, in the meantime, Trump got very much richer from the deal.
To put it quite bluntly, many companies dont give a hoot about minority shareholders.
Rather than fighting for minority rights, why not just avoid these companies altogether?
Invest in companies that treat shareholders as an important stakeholder.

[specuvestor]

^^ that's the Structure part that a lot value investors got stuck. I dsagree with the oft cited notions that stocks are just pieces of business. They are pieces of business wrapped in a structure. If one doesn't understand the structure and its incentive then one is missing a big part of the puzzle.