The very rich, F. Scott Fitzgerald once observed, "are different from you and me." That has applied even to shareholder activism, a niche of the investing world dominated by hedge fund managers who are paid enormous fees to holler and claw for every last nickel of return on behalf of their wealthy clients.
But with corporations under mounting pressure to acknowledge shareholder rights, ordinary mutual fund managers are increasingly asserting themselves on behalf of smaller investors.
The standout example is David J. Winters, chief executive of Mountain Lakes (N.J.)-based Wintergreen Advisers, a mutual fund firm with $1.3 billion in assets under management. His 15-month-old Wintergreen Fund(WGRNX) returned 20% in 2006, four points more than the Standard & Poor's 500-stock index, thanks in good part to his activist approach. "We don't treat our stocks like rental cars," says Winters. "You've got to think and act like an owner, getting the company to think better."
That's what Winters has been doing with his second-largest position, Consolidated-Tomoka Land Co(CTO). The 105-year-old property developer owns a vast expanse of virgin land in Florida. Winters has been using his 16% stake to encourage management to stay the course on its measured development campaign and to buffer it from pressure to liquidate its acreage. "We try to engage companies in a long-term constructive way," says Winters. "They've been very receptive."
Meanwhile, Franklin Mutual Advisers, Winters' old fund shop, has affixed itself to the ankle of forest products giant Weyerhaeuser Co (WY). Franklin is using its $1.2billion stake to petition the company to convert itself into a real estate investment trust in order to gain tax advantages.
Even Wall Street, which takes great pains not to offend investment banking clients, is flexing its muscle to benefit fund investors. Morgan Stanley Investment Management (MS) is using its 7.6% stake in The New York Times Co. (NYT) to lobby Times management for more shareholder accountability. In December the $450 billion asset manager--whose funds are widely available to retail investors--hired a respected activism expert to deal exclusively with corporate-governance issues.
So-called socially responsible investing is also exerting more activist influence. The asset management arms of Deutsche Bank (DB), Goldman Sachs(GS), Merrill Lynch (MER), Morgan Stanley, and UBS (UBS) are all signatories to the 2006 Carbon Disclosure Project, a global effort to push companies to recognize their impact on climate change. The roster of more than 200 supporting investment firms, representing $31 trillion in assets, is emboldening a slew of socially responsible proposals at shareholder meetings. "We're seeing a strong increase in the support for our proposals," says Stu Dalheim, manager of advocacy and policy for Calvert Group, the $14 billion socially responsible fund shop. He says the company's environmental and social resolutions at corporations are now "routinely getting support in the 20%-to-30% range," three times what it was five years ago.
By Roben Farzad