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Financial Times: Knight Vinke’s clout

Published: October 17 2007 03:00 | Last updated: October 17 2007 03:00

Determinists believe that man is the plaything of events, not their master. Knight Vinke and other activist investors clearly disagree. They believe that if the right levers are pulled, even a tiny shareholding can be used to move corporate giants. But how is it possible to know whether change would have happened anyway?

Knight Vinke, which now has its sights set on HSBC, claims to have led the shake-up of Royal Dutch/Shell. But some argue Shell’s restructuring in 2004 was inevitable following its crisis over reserves. When the fund manager went after Suez, in 2004, Knight Vinke was accused by the French utility’s management – and by some analysts – of being somewhat tardy. Suez was already working to a new action plan and the board had only just completed a review of its structure. More importantly, power prices were on the move, boosting sector share prices. Similarly, HSBC announced a new strategy, refocusing on Asia, just seven months ago.

In the end, an activist’s real influence matters less than the perception of influence. Knight Vinke now presents its “victory” over Shell as fact. The media repeats this when reporting new campaigns. Public communication is an important part of a very successful investment process, which also includes exceptionally detailed bottom-up research. While Knight Vinke may not alter a company’s strategy as much as it thinks it does, it is certainly possible that change is speeded up.

All activists depend on good timing. Not only has Knight Vinke operated in a bull market since it was founded with seed capital from the California Public Employees Retirement System in 2003, it has also proved itself a fantastic stock-picker. It buys shares when they are out of favour. Knight Vinke’s investment record cannot be questioned. Perhaps its returns would be even higher if it dropped its campaigns altogether.

Copyright The Financial Times Limited 2007

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