Access denied and
insults; U.S. mutual funds get taste of activist life
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[November 04, 2016]
By Michael Flaherty
NEW
YORK(Reuters) - Tensions between Ultratech, Inc and one of its largest
shareholders got so high that by the spring, the chief executive was
calling the investor a "cockroach" and refusing to meet with him.
The target of the CEO's ire was not a brash activist investor seeking a
quick shake-up but Benjamin Nahum, a portfolio manager at Neuberger
Berman, the mutual fund company that had held stock of the tech industry
supplier for over a decade.
Neuberger Berman, along with Franklin Resources, Artisan Partners and
several other large mutual fund firms are part of a growing band of
traditional U.S. money managers that are taking a page out of the
activist investor playbook by publicly agitating for change at companies
they believe can perform better.
In the past, so-called active fund managers that aim to pick the best
stock and bond performers rather than passively follow an index, would
have voiced concerns to CEOs in private, if they chose to speak up at
all. Public agitation has normally been the realm of activist hedge
funds and a cadre of smaller funds.
By voicing frustrations for all to see, large active fund managers open
the door even further for other major shareholders to join the public
fight and add pressure on CEOs and boards to address the proposed
strategy shifts, leadership shuffles and other changes.
T. Rowe Price, historically the most outspoken of the big active
managers, is currently pushing Oracle Corp <ORCL.N> to improve its $9.3
billion offer for cloud storage company NetSuite Inc <N.N>, which
expires on Friday. The fund, which manages $763 billion, has sent a
detailed letter to each company and has said it will not tender its
shares.
The mutual funds' public efforts to wring more value out of their
holdings is in part a response to the rising competition from the
low-fee index-tracking funds.
"You just can't follow the herd anymore. The idea of active means
defending and enhancing your investment," said Nahum, the Neuberger
portfolio manager.
![](http://archives.lincolndailynews.com/2016/Aug/26/images/ads/current/napa_bch1-3108.png)
The more aggressive approach seems to be working for T. Rowe Price,
Franklin Resources and Neuberger Berman. Active equity funds of the
first two have outperformed their active and passive peers this year,
while Neuberger was just behind its rivals, according to data from
Thomson Reuters Lipper (Graphic: http://tmsnrt.rs/2ej2ogj).
Shares of Ultratech have risen 35 percent since August 2015 when Nahum
sent a private letter to CEO Arthur Zafiropoulo and his management team,
which kicked off the fight over the company's stock performance and its
executive compensation plan, filings show.
In April of this year, Neuberger, which oversees $255 billion in assets,
informed the company it was nominating two board candidates. The fight
was on.
A Zafiropoulo representative later met with Nahum to tell him that the
CEO thought the portfolio manager was a "cockroach" who was disrupting
the company and should back off, according to people familiar with the
matter. Shareholders voted Neuberger's nominees onto the board at the
July annual meeting.
Ultratech declined to comment on Neuberger Berman’s campaign and was
unable to make Zafiropoulo available to comment on what transpired
publicly or privately between him and the fund.
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OUTFLOW
Investors have been moving away from active fund managers to index
tracking funds that charge about eight times less than the active funds
and yet have outperformed them by 149 basis points over the past five
years, according to Thomson Reuters Lipper.
Speaking up in public risks alienating CEOs and their teams, but private
dialogue, which mutual fund managers have preferred in the past, is
easier to ignore than public protests.
Forced to compete both against their peers and passive investors, active
funds are more willing to put their access to management on the line,
according to Bruce Goldfarb, the founder of proxy advisory firm Okapi
Partners.
![](http://archives.lincolndailynews.com/2016/Nov/04/images/ads/current/st_claras_lda_082114.png)
"We're seeing more cases where active managers are putting their mouth
where their money is," Goldfarb said.
Franklin Resources <BEN.N>, with assets of $771 billion, is a case in
point.
In its September profile of activist investors, investment bank Lazard
described Franklin as increasingly willing to take its discussions
public. The fund pushed chemicals firm Axiall Corp to review its
strategic options, which ultimately led to the company's $2.3 billion
sale in June of this year to fellow chemical company Westlake Chemical
Corp.
It also struck a deal with drug maker BioPharmX Inc in August, which
resulted in an independent director being added to the board. Franklin
declined to comment.
T. Rowe Price sent a detailed letter to NetSuite in Sept. opposing the
offer price and the acquisition process. T. Rowe, NetSuite's second
largest shareholder behind Oracle founder Larry Ellison, sent another
letter to Oracle last week suggesting the company bump its offer to $133
per share from $109. The companies disclosed both letters.
T. Rowe said in its latest letter that NetSuite is refusing to meet with
the fund. Oracle, which declined to comment for this story, has said it
won't raise its offer.
NetSuite, whose shares closed at $94 on Thursday, did not return
messages seeking comment. "Our one and only motivation in taking a
stance like this is to meet our fiduciary responsibility to our
clients," said T. Rowe Spokesman Edward Giltenan, adding that the fund
interacted with management teams mostly in private. "We do consider
taking a public stance when we deem it necessary to protect the
interests of our clients."
(Editing by Carmel Crimmins and Tomasz Janowski)
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