The Case for Institutional Investors’ Collective Engagements

Shareholder cooperation is on the rise as a tool for active corporate ownership and a way to effectively voice concerns about corporate governance and performance. While “wolf packs” of activist hedge funds that aim to bring about significant corporate change at targeted companies have attracted the most attention, there are other forms of shareholder coordination that are not activist-driven.

One is collective engagement by institutional investors guided by the recommendations in stewardship principles adopted in several countries. Over the last few years, representative organizations such as, to some extent, the Council of Institutional Investors (CII) in the U.S. and, to … Read more

Activist Shareholders at De Facto Controlled Companies

Activist campaigns are on the rise on both sides of the Atlantic. Even large-cap companies are increasingly targeted by activists—particularly hedge funds—with remarkable success. A big reason for that success is the support that activist proposals attract from traditional institutions, such as actively managed mutual funds, pension funds, and passive index-tracking investors. Hence, hedge funds primarily seek targets whose shareholder base features a significant proportion of institutional investors. This does not mean, however, that activists only focus on companies with widely dispersed ownership; they also target controlled companies. Minority-empowering shareholder tools, such as the right to nominate and elect some … Read more

Preserving Capital Markets Efficiency in the High-Frequency Trading Era

Automation and new technology have dramatically changed trading on equity markets over  the past 20 years, and algorithmic and High-Frequency Trading (HFT) have become prominent in U.S. and European financial markets, while regulation has been slow to adapt. Despite increasing liquidity, narrowing spreads, and diminishing short-term volatility, HFT can lower market quality and stability and render marketplaces more vulnerable, especially during crises or periods of uncertainty.

Regulations affecting HFT have prioritized, in both the U.S. and Europe, preventing market disruption and manipulation, while failing to closely consider how HFT-related inequalities in information interact with the allocative function of price discovery. … Read more