David Whissel is Executive Vice President and Director of Corporate Governance at MacKenzie Partners, Inc. This post is based on his MacKenzie Partners memorandum. Related research from the Program on Corporate Governance includes Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here).
The past four months have brought unprecedented change to the capital markets and the world at large. As the global COVID-19 pandemic spread throughout the world, the economic disruption was significant, and a decade-long bull market was transformed almost overnight. The proxy season that has followed has been unlike almost any other, but also reassuringly familiar. Despite predictions to the contrary, activism in the United States remained persistent; many large activists were limited in their activity, but the occasional and first-time activists that picked up the slack found considerable success in achieving their objectives. Further, an increase in overall market volatility saw the return of poison pills as a viable defense mechanism (at least temporarily) but has also created new opportunities for activists in what had previously been somewhat of a stagnant market.
Market Volatility Creates New Opportunities
As we have written previously, the outbreak of the coronavirus pandemic in the US in March 2020 led to an immediate and dramatic increase in market volatility at levels that had not been seen since the previous major financial crises of 2008, 1987, and 1929. The spike in volatility persisted well into April before settling down to a more normalized (but still elevated) level. Relative to the pre- COVID market, in which valuations were stretched and true “value” opportunities were limited, this new paradigm created attractive new entry points for many activists—not just in distressed sectors, but also in high-quality, resilient businesses where there was a temporary value dislocation.
Comment Letter on Control Shares Statutes and Registered Investment Companies
More from: Phillip Goldstein, Bulldog Investors
Phillip Goldstein is the co-founder of Bulldog Investors. This post is based on his letter to the SEC Division of Investment Management. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).
Once upon a time, investment companies (“funds”) were only subject to the laws of the state in which they were registered. In a report to Congress, the SEC identified a number of abuses and evils, including funds taking advantage of lax state laws to issue securities with inequitable or discriminatory provisions.
After extensive hearings, Congress concluded that the individual states had failed to protect investors from the sort of abuses the SEC had documented. (Section 1(a)(5).) Consequently, Congress adopted the Investment Company Act of 1940 (the “ICA”). Unlike other federal securities laws that focused on disclosure and fraud, the ICA required funds to adopt certain governance practices and prohibited others. Commissioner Robert E. Healy and Chief Counsel David Schenker [2] were the primary architects of what was to become the ICA. In a prepared statement to the Senate Subcommittee on Banking and Currency on April 2, 1940, Commissioner Healy said this:
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