Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U.K. Focus Fund
London Business School Finance Working Paper No. FIN462
70 Pages Posted: 4 Dec 2006 Last revised: 21 Apr 2008
Date Written: April 2008
This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its U.K. Focus Fund (HUKFF). In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking. We categorize the engagements and measure their impact on the returns of target companies and the fund. We find that Hermes frequently seeks and achieves significant changes in the company's strategy including refocusing on the core business and returning cash to shareholders, and changes in the executive management including the replacement of the CEO or chairman.
Keywords: Shareholder activism, institutional investors, real authority
JEL Classification: G32
Suggested Citation: Suggested Citation