Relational Investors LLC’s two activist asset-management funds gained about 25 percent and 33 percent in their fiscal year as campaigns at Hewlett-Packard Co. (HPQ:US) and Timken Co. (TKR:US) rewarded shareholders, a person with knowledge of the performance said.
The large-cap and mid-cap funds, which together hold about $5.5 billion, calculated returns on portfolios of publicly traded companies for the 12 months ended June 30, said the person, who asked not to be named because the results are private. San Diego-based Relational, co-founded by Ralph Whitworth, is in the process of consolidating the two into a single fund.
Founded in 1996 by Whitworth and David Batchelder, Relational buys stakes in companies it considers undervalued and then lobbies management and boards for changes to boost investor returns. Gains in Hess Corp. (HES:US) and Illinois Tool Works Inc. (ITW:US) also contributed to the large-cap fund’s 25 percent return, the person said. Harman International Industries Inc. (HAR:US), Abercrombie & Fitch Co. (ANF:US) and Ashland Inc. (ASH:US) boosted returns to 33 percent at the mid-cap fund.
Hewlett-Packard, the largest personal-computer maker, named Whitworth interim chairman in April in the midst of a multiyear turnaround after the activist urged the company to invest more in research and development and rebuild its reseller network. Its shares have climbed 74 percent this year. Illinois Tool Works said in February it’s studying the sale of its packaging business after Relational took a stake last year and pushed for increased profit. The stock has gained 36 percent in the past 12 months.
Relational got ball-bearings maker Timken to consider spinning off its steel unit (TKR:US) as the company hired Goldman Sachs Group Inc. in June to study options after stockholders backed a split. The shares have gained 18 percent in 2013. Relational is also invested in Hess, the energy company that recently settled a proxy fight with activist shareholder Elliott Management Corp. and was said to have begun the sale of its oil-terminal network. Hess is up 26 percent this year.
Whitworth, an influential adviser on corporate governance, last week received the Lifetime Achiever Award from the London-based International Corporate Governance Network, which represents institutional investors.
In 1990, Whitworth wrote a paper calling for changes to corporate governance rules that the Securities and Exchange Commission adopted in 1992 -- steps that helped make today’s shareholder activism possible.
Those changes included allowing investors to nominate a short slate of directors instead of the entire board; an overhaul of communication rules to allow anyone to comment about ballots without having to send documents to every shareholder; and requiring compensation disclosures as charts with numbers instead of “arcane narrative disclosures written by lawyers,” Whitworth said in an interview last week.
Activist investors tend to buy at least 5 percent of a company’s stock and flag their intention to actively engage corporate management and directors by disclosing their holding in a 13D filing with the SEC.
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