DeAM plans new activist shareholder stance

GERMANY - Deutsche Asset Management says it plans to take an activist approach to the running of companies in which it owns significant holdings.

DeAM said this would mean taking larger stakes in fewer companies, leading to representation on the board in some cases. However, it emphasised that it would not lead to “micro-management”.

If the strategy is successful, DeAM plans to launch a closed-end investment trust invested in its holdings of UK and German companies.

Andrew Tusa, head of corporate governance at DeAM, told pension fund managers in London that the company would take a preventative approach to both executive remuneration and capital allocation.

He said companies would be encouraged to measure their success not by earnings per share (EPS) but by return on capital employed (ROCE). “Executives should act like owners and should be remunerated by reference to return on capital employed not earnings growth.”

Tusa said that phone firm Vodafone, a company DeAM invests in, had come round to this view. “Measuring return on capital employed has risen to the top of the agenda for the board.”

DeAM also wants a say in whether shareholders’ money is used to buy businesses. “In front of a deal being announced we can ask to be taken ‘inside’ by a company. This will give access to information not available to the rest of the market, which will prevent us trading in the stock,” Tusa said.

He said that DeAM had already taken such a step with a media company where it owned more than 15% of the stock, where it advised against making as an acquisition. The company took DeAM’s advice.

Tusa said DeAM would not automatically demand a seat on a board where it owned a 10% stake in a company – the usual threshold for representation on the board. DeAM is currently unrepresented on 20 UK companies in which it owns a 10% stake.

“But if we fear that the capital allocation process risks compromising our position as owners we will make our voice heard – even to the extent of asking for board representation. And if our stakes in companies extend beyond 15% then we may ask to put a representative on the board to enshrine our influence.”

DeAM plans to model its board representation on the UK’s 3i investment trust, which has a pool of 600 non-executives for its investee companies.

Karl Sternberg, chief investment officer of DeAM, said that the more activist strategy could lead to creation of an investment trust. “If this is something that catches the imagination there’s no reason why we couldn’t launch a specific product benefiting from the sizeable existing holdings that we already have.

“The investment trust structure is definitely one that could be used for this approach. It would have to be closed end, because you couldn’t have inflows and outflows. It would destroy the whole purpose of long term investment.”

DeAM is the second largest manager of European pension fund assets, with around 92.5 billion euros under management.

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