Elliott Management has not yet started dispensing french fries with its slide deck. But in investor activism, the New York hedge fund group has become everything that McDonald’s is to a burger restaurant.
The Golden Arches and Elliott have made international brand representatives of both themselves and their wider regions. They market familiar products of consistent quality made from local ingredients. Some people dislike them heartily.
Elliot has shown his reach and potential in recent weeks by launching simultaneous campaigns in Germany, Japan and the US. It invested in Vantage Towers, Dai Nippon Printing and Salesforce. It is stalling the acquisition of the telecom company, seeking a settlement from the foil specialist and aiding the restructuring of the software giant.
Shares typically rise when Elliott announces exposure. On conservative assumptions, Elliott may have already made more than $400 million in profits on his three latest investments, before costs and hedging. During 2022, Elliott will launch 13 campaigns, according to Lazard, nearly double the number of larger rivals.
In less than a decade, Elliott has emerged as a breakout success among activists who take stakes in struggling businesses and agitate for change in hopes of soaring share prices and fat returns. US-style activism was often seen in Europe and Asia in the past as shallow, whiny, and non-profitable. Elliott helped change that approach in 2015 with campaigns against the Alliance Trust, a poorly-run Scottish investment trust, and the merger of two Samsung subsidiaries.
Elliott is also active in buyouts, distressed debt, real estate and commodities. The activism gives it an enviable storefront. The long-term group returns are believed to average around 13 percent annually. Assets under management have tripled in a decade to nearly $60 billion. Headcount has increased by two-thirds to 500.
Tryon stands for Nelson Peltz. Pershing Square stands for Bill Ackman. But Elliott doesn’t mean Paul Singer so symmetrically anymore. The business’s formidable founder, once described by The New Yorker as a “doomsday investor,” has pursued decentralization. This has allowed international growth in conjunction with the London office run by his son, Gordon.
Many CEOs are intimidated by the elder Singer. He kicks them out sometimes. A favorite thread from co-principal Jonathan Pollock is that he only survived his internship because he faxed Singer’s sandwich orders to the deli every morning. Pollock claims that this documentary evidence meant that he could not be dismissed for giving wrong orders, the fate of a predecessor.
The story is funny but points to the flamboyant harshness of private partnership. The portfolio managers presented their activist proposals to an investment committee headed by Singer and Pollock. He has to be persuaded on three fronts. First, the stock must be clearly undervalued. Second, there must be a “route” to realizing that value, for example a break-up. Third, the executive must have a “case”—an argument that will convince other investors. Tick those boxes and the executive can build a position and take the proposal out to the target board or the wider world.
Elliott has no monopoly on this methodology. But it’s good to organize. Each campaign is run by a small team. Pitch books are clean and concise. The campaign leader aims to gain the status of “best-informed investor” in debates with the owners of the target companies.
All workers have benefited from the stagnation of big business in recent years. This gives them a lot of targets. Local structural changes also help. A small cadre of powerful London fund managers have retired in the last decade. Tokyo’s financial regulator has become a proponent of shareholder value. Both markets have embraced activists as agents of change.
Elliot has his own maturity issues to deal with. The increasing scale raises conflicts of interest, for example if Elliott offers to buy a target company division that has been shaken by its activist campaign. Older staggers are especially checking out of the London office. There is an influx of bright, young things out of investment banking and private equity. They may help soften Elliot’s ruthless reputation.
But will they be hungry enough? Elliott Investing’s mere announcement now picks up one-tenth of Target’s shares. Singer and Pollock should study McDonald’s bad patch during the 2010s. It goes to show what complacency can do for a global franchise.
