Family offices can use their wealth and power for many things — even activism. This week Alec Foege explores what that means in greater detail when family offices use their voice to create change in our world. Legacy planning has always been a core aspect of why wealthy individuals create family offices in the first place — as a way to have their money matter and live on long after they’ve left the world. Now families are seeing the opportunity to marry legacy with activism.
We also ask the question: Can women have it all? I ask myself that often as a working mother of two, but our sister publication Pensions & Investments provides some candid insights from successful women in the investment world who are balancing family and full-time careers. One source explains that she’s honest to a fault with her team, especially on days that she’s “hanging on by a fingernail.” I can certainly relate to that.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: Family offices join the movement: Activist investing gains momentum
By ALEC FOEGE
Recent anecdotal evidence suggests that family offices are increasingly taking activist roles in their interactions with their portfolio companies. What level of engagement they decide upon depends on what each family is comfortable with.
“There’s a lot of activism that goes on, and much by family offices that you don’t see; because either they own less than 5%, so they’re not filing Section 13 filings, or they own more than 5%, but they’re not filing 13-Ds because they’re constructive activists,” said Jeffrey R. Katz, a partner at Ropes & Gray in Boston who advises activist shareholder clients. “They’re not demanding control — that doesn’t mean they’re not influencing companies.”
In July, renowned activist investor Ed Garden — until recently chief investment officer at Trian Fund Management — announced a plan to establish a family office focused on making opportunistic investments. That most likely will include taking activist positions in public companies.
Garden co-founded Trian with his father-in-law, Nelson Peltz, and Peter May in 2005. In recent years, Trian made headlines by agitating for shake-ups at companies such as H.J. Heinz, Procter & Gamble and DuPont.
While few family office investors are willing to announce their activist intentions so brazenly, many have become comfortable with protecting their investments more directly.
“I think it’s part of a broader trend, which is the expanding universe of shareholder activism and active shareholder engagement,” said Tom Matthews, a partner at White & Case in London and head of the firm’s activism practice in Europe, the Middle East and Africa. “We are seeing what could be regarded as traditional shareholder activist tactics being adopted by a much broader range of investors, including family offices.”
CREATING A LEGACY
Families, of course, have somewhat different sets of objectives other than categories of investors. While generational wealth preservation is a given, today’s families of means often also want to make a public statement about their values.
“For the traditional family office, getting a positive and strong financial result was always important,” said Meagan Reda, a partner at Olshan in New York who specializes in shareholder activism. “But now there’s an overlying theme to leave a lasting legacy for their families.”
Reda sees the younger generations more focused on giving back to society and views activist investing as a way for them to push for important societal changes that can support a family mission and values.
“There has been a fundamental shift in the sentiment toward activists generally, who are no longer viewed as corporate raiders and now are increasingly viewed as driving long-term value,” Reda said.
She points to an uptick among her clients in ESG investing following the pandemic. Considering a public company’s environmental, social and governance ratings in addition to its financial metrics has become not just a talking point but a driver of valuation and a catalyst for change and action.
Still, activist family offices tend to prefer building consensus among a company’s stakeholders as opposed to, say, engaging in more public and vocal strategies.
“From the occasional private conversation with the board through to a full-throated proxy campaign to kick out the board and replace them with somebody new, there’s a long line between those two points,” Matthews said. “Family offices tend to be longer-term shareholders, and a longer-term horizon allows for a more patient and constructive approach.”
RISKS AND (HOPEFULLY) REWARDS
While family offices are becoming more comfortable expressing their dissatisfaction with management, they rightly remain wary of unintended consequences.
The most humiliating of those may be not getting that call returned, not getting access to company officers or, worse, receiving blowback from management that results in a standoff.
The legal perils could be more serious. A family office could unintentionally trigger a notice from the Securities and Exchange Commission for failing to file the proper regulatory disclosures.
That’s why Ropes & Gray’s Katz says consulting a legal adviser before making any activist move is important.
“We talk to the family office and say: 'What’s your goal? How important is access?' Not only access to management but also access to opportunities.”
Katz also asks clients what percentage of a company they hold, because if they own less than 5%, then they have a lot more leeway. If they own more than 5%, which requires filing disclosures with the SEC, they need to know what the tripwires are and how to avoid them.
For example, Section 13 group rules stipulate that even when an investor owns less than 5% of a company’s shares, if they are talking with other shareholders who in aggregate own greater than 5%, they would have a filing obligation.
“It’s good to get the guidance in front of the investment professional before they talk to other shareholders, before they talk to management,” Katz said.
But family office activists, especially newer ones, have some advantages over institutional activists, in some instances.
For one, they have a little more flexibility than traditional investment firms, given that they are less driven by investor expectations and have more liberty to choose where and how to invest their assets.
Family offices also may engender more goodwill from companies when lobbying for changes.
“It’s much more difficult, in my experience, for a newer or a less traditional activist to effectuate change,” Reda said. “But family offices generally come off as less aggressive, and for that reason, that does give them some benefit in the sphere.”
Can women have it all? Yes, but not all at once, say Influential Women in investing
By CHEYENNE LIGON AND ARLEEN JACOBIUS
Many of the women who climbed their way to the top of the ladder in institutional investing make success look easy — from the outside, they appear to balance billion-dollar portfolios, family responsibilities and self-care with ease.
But many of the 65 women featured in this year's inaugural class of Influential Women in Institutional Investing said the challenges are real, even as the industry aims to place more emphasis on attracting and retaining women to ensure greater diversity of thought and, as a result, better performance.
Lingering taboos remain against working part time or talking openly about the child- or elder-care responsibilities women might have, even though many said the COVID-19 pandemic did help normalize discussions about work-life balance.
To support and encourage women, members of the 2023 class have led a variety of efforts in their firms and within the industry — developing and leading employee resource groups, speaking at industry conferences, actively mentoring younger women and diverse candidates, putting younger women in front of senior leadership and pressing for more inclusion and transparency in hiring, among other initiatives.
But a number also stressed the responsibility that high-level women in the industry have to their younger counterparts to be brutally honest, providing a realistic perspective on the demands of the job and advice on how to manage them.
"I often have people, even now, say to me, 'Oh, you look like you're so cool, calm and collected and like things going on outside don't bother you,' " said Jennifer DeLong, head of defined contribution at AllianceBernstein. "And I'm like: 'I might look that way, but I don't feel that way. Come sit down.' "
Over her 24 years at the firm, DeLong, among other things, has served as a mentor in AB's Career Catalyst program for VP-level women and is a member of an employee resource group devoted to helping women build and expand their leadership roles at the firm.
For Olaolu Aganga, the newly named U.S. CIO at Mercer, honesty is a key part of mentorship, because not being truthful about what it takes to be successful at work can make younger women feel as if they're doing something wrong or failing when they run into obstacles, she said.
"Can you have it all? Kinda? But not at the same time — not at the same time," she said. "You can have the husband, you can have kids, you can have the career — but can they all exist perfectly well at the same time? Impossible. That is a reality that women in this industry live with."
Before joining Mercer in September, Aganga was managing director, lead client CIO for endowments, foundations and health care within multiasset strategies and solutions in the Americas at BlackRock Inc. Within her division, she was one of 12 individuals on its Talent Leadership Team, which focused on recruitment development and DEI, according to her nomination form.
She also mentored nearly two dozen junior employees from underrepresented communities, working with them on training and skills development and providing forums for them to connect with senior leaders.
From Pensions & Investments, a sibling publication of Crain Currency
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Help us with a story: We are working on an article about stealth wealth and how many wealthy individuals are being low-key about their fortunes. If you have any comments on the topic, reach out to [email protected].