SIVs, Called Cullinan Finance Ltd

HSBC Holdings PLC yesterday became the first bank or investment company to bail out specialized funds known as organized investment vehicles. 45 billion in mortgage-backed securities and other possessions possessed by the funds onto its balance sheet. SIVs, called Cullinan Finance Ltd. 37 billion in assets, is the second-largest SIV after Sigma Finance Corp., an SIV managed with a nonbank company in London called Gordian Knot Ltd. 8 billion in resources. HSBC’s move was viewed as a plus for companies such as these, since it would assist in preventing a fire sale. J.P. Morgan analyst Kenneth Worthington in a study notice yesterday.

Second, the news that a well-known (and savvy) value investor have bought (or sold brief) a stock may lead traders to reassess the purchase price and remove or reduce market mistakes. Finally, activist value investors with enough heft may be able to get companies to remove some of the sources of market misunderstanding, pushing for (and getting) companies to spin off or divest non-core possessions and increase accounting transparency.

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  • Health care (example: pharmaceutical companies)
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  • What will an investment bank or investment company do
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As the explanation should explain, activist value trading requires significant resources (to acquire large stakes in publicly traded companies) and persistence (it requires time for you to get management to change its ways). By its very character, it requires concentrated portfolios also, because you cannot contest managers at dozens of companies at the same time.

Most institutional traders are ill fitted to activist value investing, since they don’t have the time horizon to hold back for activism to pay off or the abdomen to challenge incumbent managers. It really is ironic, therefore, that a few of the first attempts at activism in recent decades came from institutional traders like CALPERS, the California Public Employee Pension finance.

While activist organizations remain the exemption, there are still mutual money (mainly small) that play the activist game. The early eighties also saw the arriving to the age group of “corporate raiders”, who targeted what they noticed as bloated corporations and demanded change. That tradition remains alive in the average person activists such as Carl Expenses and Icahn Ackmann, among others, who target companies for change publicly. In summary, institutional investors have pushed mainly for changes in corporate governance and saw little payoff with their activism. Individual activists have targeted unprofitable, poor executing companies, agitated for deploying assets to more profitable uses and higher dividends, and the survivors have produced superior results (though the unsuccessful ones drop out quickly).

Given that most of us do not have the resources to be activist value traders on our very own, is there a way to still make a play with this process? Follow the activists: You could invest in companies that have been targeted by activist investors and make an effort to ride their coat tails to raised stock prices. Lead the activists: You can try to identify companies that are badly handled and run, & most apt to be targeted by activist investors thus.