Presentation on Institutional Investors

1. Who Regulates?

a. An activist investor is a specific type of institutional investor who purchases large

numbers of a public company's shares and/or tries to obtain seats on the
company's board with the goal of effecting a major change in the company. Their
intention is typically to increase the value of their own holdings, but they may
also be motivated by broader goals such as environmental or social concerns.
b. Activist investors don't "regulate" in the formal sense of creating or enforcing
rules or laws. Instead, they use their influence as major shareholders to push for
changes in a company's strategy, operations, management, or structure.
c. They have to undertake a certain amount of steps in order to gain their aim:
i. They announce their campaign with the Securities and Exchange
Commission that lets the board and other shareholders know when
someone has purchased 5% or more of the company’s stock => they fill a
document (a 13D)
ii. Control assertion by running campaigns to persuade other shareholders of
their vision (sometimes includes a PR campaign)
iii. Nominating a new candidate for a board position and asking shareholders
to vote out the incumbent at the annual shareholder meeting in a proxy
fight. => the most aggressive step the activist investors can take

● Fall of 2022 - SEC’s “universal proxy” rules go into effect

Pre-universal proxy rule
Investors can withhold market moving
information from other shareholders for 10
days after crossing the 5 percent threshold
before filing a Schedule 13D
The public comment period open for 60
days following publication of the
proposing release on the SEC's website or
30 days following publication of the
proposing release in the Federal Register,
whichever period is longer.
Now
Reduction of the timeline:
- From 10 to 5 days
- Amendments have to be done within one
business day
Application of Regulation 13D-G to certain
derivative securities expanded
Expand the definition of a “group” for purposes of
reporting.
New exemptions to permit certain persons to
communicate and consult with one another, jointly
engage issuers, and execute certain transactions
without being subject to regulation as a "group;"
Reasoning
“These amendments would update our
reporting requirements for modern
markets, reduce information asymmetries,
and address the timeliness of Schedule
13D and 13G filings,”
“clarify when and how certain
derivatives acquired with control intent
count towards the 5 percent threshold,
clarify group formation, and create related
exemptions.”

Schedules 13D and 13G be filed using a structured,

machine-readable data language.

Public comment period remains the same

2. What is the main goal of an Activist Investor?

a. The main goal of an activist investor is to increase the value of their investment
by influencing changes in a company's strategy, management, or structure. This
can be driven by a desire for higher financial returns or, in some cases, broader
concerns such as environmental, social, or governance issues.
3. What are the assets/products they invest in?
a. Equities (Stocks): This is the most common asset for activist investors since
buying a significant amount of a company's stock gives them a voice in its
management.
b. Bonds: While less common for activist strategies, bonds can be a tool, especially
if the company is facing financial difficulties or if there's potential for a
restructuring.
c. Derivatives: These financial instruments, such as options or futures, can be used
as a part of complex strategies to hedge or to leverage positions.
d. Real Estate: Some activist investors might target real estate investment trusts
(REITs) or companies with significant real estate holdings.
e. Private Equity: Activists might invest in private companies or try to take a public
company private if they believe they can unlock more value that way.
f. Commodities and Commodities Futures: In order to enforce new policy changes
or commodity-market changes, the activist investors might try to invest in
commodities such as oil, gold or agricultural products.
g. Mergers & Acquisitions: Activists might push for mergers, acquisitions, or
divestitures if they believe such moves can increase shareholder value.
h. Proxy Fights: Not an asset per se, but a strategy. Activists can use their shares to
launch a proxy fight, trying to rally other shareholders to their cause.
4. Examples?

There have been several prominent activist investors and activist investment firms over
the years.

a. Investment firms:

b. Individuals:
Carl Icahn: Carl Icahn is one of the most famous activist investors. He has
targeted numerous companies over the years, including Apple, eBay, and Netflix.
His activism often involves pushing for changes in corporate governance, share
buybacks, and other strategies to increase shareholder value.
Nelson Peltz: Nelson Peltz is the founder of Trian Fund Management, an activist
investment firm. He has been involved in campaigns with companies like Procter
& Gamble, DuPont, and Wendy's, advocating for operational improvements and
changes in strategy.
Bill Ackman: Bill Ackman is the founder of Pershing Square Capital
Management. He is known for his activism with companies like Herbalife, Target,
and Chipotle Mexican Grill. Ackman has pushed for changes in management,
governance, and capital allocation.

5. Who Manages this?

a. The management involves a combination of financial analysts, strategists, legal
experts, and public relations professionals, among others. The team conducts
thorough research, engages in dialogue with the target company, develops
proposals, and often communicates with other shareholders to gain support for
their initiatives.
6. Who invests in things like this?
 a. Investors in activist strategies, or in funds that employ activist strategies, can
come from various backgrounds. They are typically those who believe that the
activist approach can generate above-average returns or align with specific values
they uphold. Here are some of the typical investors in activist strategies:
High-net-worth individuals: Wealthy individuals who believe in the potential for outsized
returns or value alignment might invest a portion of their capital in activist hedge funds
or strategies.
Institutional Investors: Larger entities, including pension funds, endowments, and
sovereign wealth funds, might allocate a portion of their assets to activist strategies. They
often do this in the hope of benefiting from the potential value creation that activist
investors can bring about.
Mutual Funds: Some mutual funds, especially those with a focus on value investing or
governance, might invest alongside activist investors or even adopt activist stances
themselves.
Other Hedge Funds: Some hedge funds, though not explicitly activist in nature, might see
value in specific activist campaigns and choose to invest alongside well-known activist
investors.
Family Offices: These private wealth management advisory firms that serve ultra-high-net-
worth investors might allocate a portion of their investments to activist strategies.
Retail Investors: While individual retail investors might not typically have the capital to
influence companies directly, they can invest in activist hedge funds or mutual funds that
employ activist strategies. They can also support activist campaigns by voting their
shares in line with activist proposals.
Foundations and Endowments: These entities, especially those with a focus on social
responsibility, might invest in activist strategies, particularly if the activism aligns with
their broader mission or values.
Specialized Investment Vehicles: Some investment vehicles are created specifically to
support an activist campaign. Investors who believe in the cause or the potential for profit
might invest directly in these vehicles.

It's worth noting that investing in activist strategies can be riskier than traditional
investments. While the potential for reward is high, the outcomes of activist campaigns are
uncertain. As such, investors who choose to invest in these strategies should be aware of the risks
and have a tolerance for potential volatility.

7. Who commercialized it?

Activist Hedge Funds: These are the primary entities that drive activist campaigns. Examples of
prominent activist hedge funds include Pershing Square Capital Management (headed by Bill
Ackman) and Elliott Management (led by Paul Singer).
 Investment Banks: They don't typically drive activist campaigns themselves, but they might
provide services to activist investors. This includes advice on strategy, helping to secure
financing, or facilitating meetings with other institutional investors.
Brokerage Firms: They can allow their clients to invest in activist funds or related products.
Financial Advisors & Wealth Managers: These professionals might recommend activist
strategies or funds to clients as part of a diversified portfolio, especially for those
interested in more aggressive strategies.
Platforms and Research Providers: Companies like FactSet and Bloomberg might offer
tools or data services tailored for activist investors, enabling them to identify potential
targets or conduct in-depth analysis.
Specialized Investment Platforms: Some online platforms might be dedicated to activist
strategies, allowing individual investors to pool funds and take collective action.
Legal Firms: While they don’t commercialize activist investing directly, specialized legal
firms offer advice and services related to the regulatory and legal aspects of activist
campaigns.
Public Relations Firms: Activism often requires a media strategy, especially for high-profile
campaigns. PR firms specializing in financial communications may work closely with
activist investors to shape public perception and garner support for their initiatives.

In essence, while the core of activist investing is often driven by hedge funds, a broader
ecosystem of service providers and platforms commercialize products, tools, and services that
facilitate or support this form of investing

8. Liquidity
In the context of activist investing, liquidity can be influenced by several factors:

Size of Stake: An activist investor typically buys a significant stake in a company, which can
be a large portion of the company's available shares. The larger the stake, the harder it
might be to sell without moving the market.
Company's Market Capitalization: Stocks of large-cap companies are generally more liquid
than those of smaller firms.
Trading Volume: Stocks with higher daily trading volumes tend to be more liquid.
Nature of Investment: Some investments made by activist investors, such as certain
derivatives or private equity stakes, might be less liquid than publicly traded stocks.
Duration of Investment: Activist strategies often involve a longer-term commitment to a
company. While the assets themselves (like stocks) might be liquid in a general sense, the
activist might not want to sell them quickly, tying up the funds for an extended period.
Market Conditions: In turbulent market conditions, liquidity can decrease, making it harder
for investors, including activists, to exit positions without incurring significant losses.
Shareholder Agreements: Sometimes, activists might enter into agreements or
understandings that limit their ability to sell their stake within a specific period, affecting
liquidity.

For those investing in activist funds or strategies:

 Fund Lock-up Periods: Many activist hedge funds have lock-up periods where investors
can't withdraw their money. This lack of immediate accessibility impacts liquidity.
Redemption Terms: Even after lock-up periods, there might be specific terms and conditions,
like quarterly redemptions with a notice period, which can influence liquidity.
Fund Structure: Some activist funds might be structured in a way that inherently limits
liquidity, especially if they invest in assets that aren't easily tradable.

In summary, while the assets that activists typically invest in (like public company stocks) are
generally liquid, the specific circumstances surrounding activist campaigns and strategies can
impose liquidity constraints. Investors should always be aware of these potential limitations
before committing funds.

9. Minimum investment
The minimum investment required to participate in activist strategies varies widely depending on
the specific vehicle or platform through which you're investing and the nature of the activist fund
itself. Here's a general breakdown:

Direct Activist Hedge Funds: These funds typically cater to high-net-worth individuals and
institutional investors. The minimum investment can range from a few hundred thousand
dollars to several million. For example, it's not uncommon for prominent activist hedge
funds to have minimum investments of $1 million or even higher.

Mutual Funds with Activist Strategies: These funds are more accessible to retail investors.
The minimum investments can range from as low as $500 to $10,000 or more, depending
on the fund.

Specialized Investment Platforms: These are platforms that might allow pooling of resources
for collective action. The minimum investment can vary widely but may be lower than
direct activist hedge funds, ranging from a few thousand to several hundred thousand
dollars.
Private Equity with Activist Leanings: Like hedge funds, private equity funds can have high
minimum investments, often in the millions of dollars.
Online Crowdfunding Platforms: If there are platforms that allow smaller investors to pool
their resources for activist campaigns, the minimum investment could be quite low,
potentially even below $1,000.
Separately Managed Accounts (SMAs): High-net-worth individuals or institutions might
work with wealth management firms or investment banks that offer activist strategies
through SMAs. The minimums here can also be quite high, often in the millions.

It's essential to note that these figures are general estimations. The actual minimum investment
can vary based on the fund's or platform's strategy, target investor base, and other factors. If
you're interested in investing in activist strategies, you should reach out directly to the
investment vehicle of interest or work with a financial advisor to understand the specific
requirements.

10. How much is invested in the whole economy?

 The volume of assets traded by activist investors can vary significantly from one year to
another and depends on a variety of factors, including market conditions, the number of
activist campaigns, and the size of individual activist funds. Activist investors typically
trade in and out of positions in target companies as they seek to influence change or
realize value, and the assets under management (AUM) of activist funds can change over
time.

The volume of assets traded by activist investors is not typically reported as a single
aggregate figure, as it varies widely across different funds and campaigns.

To obtain specific data on the volume of assets traded by activist investors in a particular
year or period, one would need access to fund-specific disclosures and filings, as well as
information on individual activist campaigns. Such data is often available through
financial news sources, regulatory filings, and specialized research firms that track
activist investor activity.

Some of them are:

a. Institutional Shareholder Services (ISS): ISS is a leading provider of corporate
governance and responsible investment solutions. They offer research and data
services that cover various aspects of shareholder activism, including proxy
voting recommendations, activist profiles, and governance research.
b. FactSet: FactSet provides financial data and analytics to institutional investors.
They offer research and data related to activist investing, including information on
activist campaigns, shareholder proposals, and company engagements.
c. Bloomberg: Bloomberg Terminal users can access a wide range of information
related to activist investor activity. Bloomberg provides news, data, and analytics
on activist campaigns, as well as profiles of activist investors and their holdings.

11. Returns