Institutional Investor's Alpha Magazine - April 2008 - (Page 8)

Meanwhile, HBOS is working closely with the FSA to pinpoint the timing, location and nature of the rumors. The bank’s CEO, Andrew Hornby, boldly bought 92,812 shares the day after the sell-off, using £414,129 ($822,411) of his annual bonus; other HBOS executives followed suit, purchasing £5.8 million worth of shares. It seems to have worked. HBOS’s share price had risen more than 30 percent from its March lows by early April. — Loch Adamson Activists T here’s a new playbook on activist hedge funds. Against such funds, to be precise, penned by the Conference Board, the New York–based nonproﬁt business group of corporations and institutional investors best known for its monthly reports on leading economic indicators. The board in March released tips for “public companies and institutional investors [that] might find themselves involved in an activism campaign mounted by hedge funds.” They include maintaining good intelligence on who owns how much stock and how to avoid becoming a hedge fund target (keeping too much cash on hand instead of returning it to investors is sure to attract attention). How to react is also covered (“ignoring the activists’ demands” is a bad idea). The board cautions companies to keep tabs on who’s lending shares to whom during a proxy ﬁght and suggests thinking twice before investing in hedge funds — presumably to send a message. The advice comes as activism continues to draw headlines, and despite certain hedge fund blowups. “Even with all the talk of hedge funds imploding, if you look at the current proxy season, you ﬁ nd that a great number of activist campaigns are being initiated and led by hedge funds,” says Matteo Tonello, a senior researcher at the board and the author of the working paper that contains the tips. “This economic climate is very good for hedge funds because they present themselves as an agent of change and show they’re pursuing ﬁnancial and governance improvements.” Hedge fund managers are sometimes portrayed as ﬂy-by-night quick-buck artists lusting after short-term gains. Snehal Amin, a partner at the Children’s Investment Fund (UK), or TCI, a well-known, $10 billion activist hedge fund, challenged that notion before a congressional subcommittee in early March by explaining the governance changes TCI is seeking in its proxy battle with CSX Corp., the U.S. rail giant. “We are committed, long-term investors,” Amin said. “We ask our own investors to commit their capital to us for years at a time so we can be faithful to our investing philosophy.” (For more on the battle between TCI and CSX, see “Rail Wars,” page 14.) To be sure, the Conference Board does not regard hedge funds as a monolithic phenomenon, Tonello says. And even some of the most resistant companies are starting to make nice with activist hedge funds: The New York Times Co. reached an agreement in March with Harbinger Capital Partners Funds and Firebrand Partners to expand its board of directors, adding two Illustration by Joshua Gorchov for Alpha The Anti- Stocking Up: Red Meat hen you land at Sydney’s Kingsford Smith International Airport, you’re using a facility owned by Macquarie Group, the Australian behemoth whose diversiﬁed holdings include toll roads, banks and bigcity real estate. Up nex t: the outback. These days a lot of Aussie steaks and lamb chops come f r om Macquar ie - ow ned farms. Macquarie, owner of about $185 billion in global infrastructure holdings, is moving into the sheep and cattle business. It is seeking more than $1 billion from Australian and international institutional investors for a new fund to buy a swath of farmland across the country’s northern end and along its eastern seaboard. It has raised $600 million and invested about $93 million of that so far. The move comes largely in response to demographic changes in Asia and the accompanying demand for more highprotein foods. Tim Hornibrook, who directs the fund — known as Macquarie Pastoral Services — expects it eventually to buy several dozen properties and run some 300,000 head of cattle and sheep. That would rank Macquarie among the biggest farming conglomerates in the country. (The leader is the publicly traded Australian Agricultural Co., which runs 550,000 head of cattle on about 25,000 square miles, an area roughly the size of West Virginia.) Hornibrook says the idea is to take advantage of a boom in soft commodities. “We started to look at opportunities: tropical fruits, dairy, nuts, grapes and aquaculture,” Hornibrook explains. “Livestock was the most attractive industry on a riskadjusted basis.” The overriding reason, W he says, is rapidly increasing demand from Asia’s growing middle class. He notes that this is also a good time to buy property in Australia, because many family-owned farms face a generational change. Fueling the shift is a drought that is in its ﬁ fth year. Macquarie isn’t the only big player moving into this space. In December, Peter Corish, a former chief of Australia’s National Farmers’ Federation, formed PrimeAg, which raised about $280 million in an initial public offering. PrimeAg is focused on grains. Hornibrook estimates that the topperforming quarter of Australian cattle farms with more than 1,200 head have had annual returns of 14.8 percent over the past 25 years, and that similarly ranked sheep ranches with more than 20,000 animals have delivered 12.5 percent. Macquarie Pastoral fees are similar to the ones the parent company imposes on its other special funds (like Macquarie Airports, owner of the Sydney airport, and Macquarie Infrastructure Group, owner of the Chicago Skyway), taking an annual management cut of 1.25 percent and a performance fee of 20 percent on returns above 8 — Robert J. Rosenberg percent. 8 • INSTITUTIONAL INVESTOR’S ALPHA • APRIL 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - April 2008

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

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