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'Cherish and embrace' activist shareholders

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EUROPE - Shareholder activism is an incentive to better governance and value creation which should be "cherished and embraced", a panel discussion on hedge funds in London stressed today.

Speaking at the hedge fund roundtable during today's EDHEC alternative investment days in Londo, Niall Bohan, head of the asset management unit at the European Commission (EC), said the principal benefits of activism by hedge funds and institutional investors should be recognised.

"We should be wary of any development that would prevent them from bringing the benefits of control to existing company management," said Bohan.

While short-term activism does not always benefit other shareholders and the risk of the leverage used by activist hedge funds can overemphasise the short-term focus, Bohan concluded "nevertheless, we recognise activism as something to be cherished and embraced".

Paul Frentrop, head of corporate governance at APG, the newly-seperated asset management and pension provider arm of giant pension fund ABP, agreed with Bohan, adding: "If you disarm shareholders, then corporate managemeent will destroy value creation."

Frentrop identified a lack of shareholder activism as part of the cause of Belgian-Dutch bancassurer Fortis' recent demise.

Stephan Howaldt, chief executive of Hermes Focus Asset Management Europe, owned by the UK's largest pension fund the British Telecom pension fund, said despite some drawbacks and negative effects, activism helps value creation in companies.

He concluded shareholder activism is now needed more than ever since "companies face completely new challenges", though adding new standards should be introduced to prevent shorting from getting in the way.

The EC takes the stance that a regulatory framework around shareholder activism should be mainly self-regulatory combined with working group standards, according to Bohan.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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