SKAGEN Insight A Global Shadow Activist Fund
Portfolio Manager: Tomas Johansson • Portfolio Manager - SKAGEN Insight (1 year) - SKAGEN Global (2 years) • Experience working at leading activist fund, Cevian Capital (6+ years) • Strong educational background - Master’s , Corporate Finance - Stockholm School of Economics - Master’s, Industrial Engineering and Software Design - KTH Royal Institute of Technology - Master of Laws (LL.M.) - Stockholm University 2
SKAGEN Insight – A global “shadow activist” fund New innovative concept 1. Traditional activist funds create a lot of value, but this is consumed by high fees; and 2. Value creation happens when campaign is publically known. → Opportunity to generate excess return by ”shadowing” activists. Activist SKAGEN Insight SKAGEN Insight targets 30-40 of the most attractive activist campaigns globally. 3
Traditional activist funds Investor concerns Why? Strong performance and resource-intensive investment High fees processes have allowed funds to charge 2&20 type fees. Home market bias and highly concentrated portfolios reduce Lack of diversification diversification and increase risk. Multi-year lock-ins Risk of damaging the value-creation process at companies. Resource-intensive investment processes require significant Significant minimum commitments investment. Traditional activism is a successful approach but expensive and does not offer liquidity. 4
Shadow activism – the concept Return Discount Activist pre- disclosure Insight expected return return Activist return Fast money in & out Disclosure 0 % (net) Time Insight entry Activist Value creation Exit disclosure inflection Activist “locked - in” Activist holding period Insight holding period 5
Shadow activism Key benefits Why? More efficient capital cycle means same money-weighted return Higher expected gross returns translates into higher annualized return. Less resource-intensive investment process equals lower costs Lower fees (= higher net returns) for everyone. No need to lock-in investors because Fund can scale positions Daily liquidity without damaging the value-creation process at companies. Fund suitable for investors that have not been able to access Negligible minimum commitment traditional activism. More diversified portfolio from a geographical, industry and Lower risk activist principal perspective. Offers the same fundamental exposure as traditional activist funds but in a smarter way. 6
Focus on improving companies Investment cases touch several themes: Operational Financial Structural Strategic Governance Improvement Improvement Improvement Improvement Improvement Activists are able to raise the boardroom temperature, which creates value for all stakeholders. 7
Investing in SKAGEN Insight in an uncertain world Short-term volatility is a medium-term opportunity Return Year Excess return (€ %) 15/1/18 – 15/6/18 2018 ITD -3.31% 3.56% • (Inception date, 21 August 2017) • Launch date B-class, 15 January 2018 Market volatility catalyzes positive change in the real world and supports stronger medium-term outperformance. 8
SKAGEN Insight Largest Holdings Number of companies: 31 Active share: 98% Holding Country Sector % ThyssenKrupp GERMANY Materials 7.2% Teikoku Sen-I JAPAN Industrials 5.1% Diebold Nixdorf UNITED STATES Information Technology 4.9% Eltel SWEDEN Industrials 4.8% Ericsson SWEDEN Information Technology 4.7% Mondelez UNITED STATES Consumer Staples 4.1% Conduent UNITED STATES Information Technology 4.1% Hertz UNITED STATES Industrial 4.0% Perrigo UNITED STATES Healthcare 3.9% General Electric UNITED STATES Industrials 3.9% Overall - Total 46.7% Source: SKAGEN AS as at 8 June 2018 9
Example: Structural Improvements ThyssenKrupp (7.2%) Company overview TKA is a technology holding company operating 6 business: Elevators ( group’s crown juvel), Steel Europe, Components Technology, Materials Services, and Steel Americas (pending sale). Investment thesis (excerpt) • Classic case of a conglomerate trading as its least attractive part (European Steel operations). • Structural change process starts with pending Tata JV (separation of steel activities). • Opens up roadmap to maximize value of core capital goods businesses. • Structural change augmented by cultural shift (TKA has sold the private jet…) Activist involvement: • Cevian Capital (~20%) sits on the supervisory board. • Elliott just announced they are building a stake. 10
Example: Financial Improvements Teikoku Sen-I (5.1%) Company overview Capitalization (¥bn) Fire hoses were once the core of Teikoku’s business (still 60 commands 50% market share), but it has transformed into a supplier of a variety of disaster prevention products, including 50 nuclear energy disaster response goods and hazardous materials detection systems. Investment thesis (excerpt) 40 • Inefficient capital allocation is destroying shareholder value. Currently, EV is near zero (balance sheet is loaded with cash), 30 which is bizarre for a well-run profitably growing business. • Unwind of cross-shareholdings will lower financial risks, boost 20 ROE, and support a re-rating of the core business. • Shareholders grow more vocal following Prime Minister Shinzo Abe’s push to strengthen corporate governance in Japan. 10 Activist involvement: • 0 Sparx (5%) has launched a campaign. Market value Net cash Enterprise value 11
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