Activists cases have to stack up

Activist investors invariably generate a fair amount of heat… some justified but often not. At the end of the day, their cases need to stack up, and they need to make their case clearly. 

Having names such as Bill Ackman, David Einhorn, Chris Hohn, Dan Loeb and Paul Singer on your share register puts the fear of god into a CEO and their team. Yet these investors are prepared to put their heads above the parapets and often see faults where others do not. 

One of the big names to fall recently is Dozy Mmobuosi, head of Tingo Group, who has been charged by the SEC with ‘staggering fraud’, and comes seven months after Hindenburg released their research: ‘Fake Farmers, Phones, and Financials - The Nigerian Empire That Isn’t’. 

All too often, activist investors are depicted, as part of the target’s defence, as opportunists. Yet, there is nearly always a clear rationale behind their positions. 

The activist’s thinking may not suit all investors - although it clearly suits the activist - but it is their analysis of management competence, balance sheet weakness, or out-and-out fraud is what they are looking to flag. 

Activists keep companies in check, especially when their investment is at stake. Unlike auditors, activists are specifically looking for faults rather than good housekeeping, and when they do, they put their money to work. Because of this, activists are often far ahead of the auditors or the financial regulatory body. 

You may not like activist investors, but they have a vital role to play, and, ultimately, in the grand scheme of things, they help with the checks and balances of running today’s capital markets.