Coronavirus Round-up: Poison pills and dry powder

Companies are rushing to adopt shareholder rights plans known as “poison pills” to fend off activist hedge funds looking to exploit the pandemic sell-off, according to a Reuters report citing data from FactSet and Deal Point Data. The plans prevent other companies and investors from building stakes above a certain threshold and are not liked by shareholders and advisory firms like ISS and Glass Lewis because they dilute ownership. "Hedge funds don't see an economic crisis of epic proportions, they see an opportunity," the report quoted Kai Liekefett, co-chair of the shareholder activism practice at law firm Sidley Austin, as saying.

Pension schemes “whose funding levels have been impacted, are likely to take on more portfolio risk once the dust settles” according to a note by Mathias Neidert, Head of Public Markets at investment manager selection specialist bfinance. Only a minority (11%) of investors who responded to a snap poll by the firm had made “major dynamic or tactical changes” since the onset of the crisis. But the firm added that investors should take care of the “excited tone” coming from asset managers as they may not have the cash to capitalise on opportunities. And pension funds with liability-driven investment strategies were “likely to have significant dry powder available” due to re-leveraging in leveraged LDI vehicles.

“Social" considerations are back at the forefront of ESG, according to a research note from Morgan Stanley, entitled ‘Covid-19: Effects on Employees, Productivity, and Corporate Reputations’. “While corporates work to navigate near-term challenges, it's important to keep in mind that decisions affecting a company's human capital, customers, and the communities in which it operates can have lasting implications, both positive and negative.” These factors “can be linked to long-term performance and returns” and have become more important as more investors are “looking at companies through an ESG lens”.

Baillie Gifford, the Edinburgh-based partnership with £218.6bn (€238bn) under management and advice, says it has made few changes to client portfolios during the crisis though it is “considering opportunities to add to holdings in companies we admire at depressed prices”. Noting the greater focus on companies acting responsibly towards all stakeholders, it said: “We will learn much about their commitment to such concepts in coming weeks.”

Climate stocks have outperformed by 7.6%, according to a note from HSBC, since the initial days of the outbreak (dated from December 10, 2019). Since February 24 when volatility increased dramatically, outperformance has been 3%. Similarly, the high ESG-rating stocks, HSBC said, have outperformed global equities by c.7% since December and “by a similar amount” since February 24. The bank said: “Our long-held, core ESG conviction is the simple idea that issuers succeed long-term, and hence deliver shareholder returns, when they create value for all stakeholders – employees, customers, suppliers, the environment, and wider society. Consequently, a key part of ESG is looking at how issuers serve society, and what this may mean for the future.”

PIRC, the UK shareholder advisory firm, has written to 4,000 companies worldwide urging them to suspend executive bonuses for executives so that managers share the financial hit from the outbreak with staff and shareholders. According to a report in the Financial Times, PIRC Managing Director Alan MacDougall, said firms must recognise the “challenges many employees face”.

Governance advisory firm ISS has released a paper called ’Investor Considerations in a Time of Pandemic’ which maps the impact of Covid-19 on air travel and transportation. It follows an earlier paper ‘Investment Implications of Pandemic Risk for the Airline Industry’.

The outbreak has caused the State Street Investor Confidence Index for March to drop 4.0 points, to 74.5, from February’s revised reading of 78.5. But as the number of active cases in China has declined, the bank said investor sentiment in Asia actually rebounded in March by 8.7 points, “largely reversing February’s decline”.

The US has lifted a ban on medical glove producer WRP Asia Pacific, which was blacklisted over accusations of forced labour, as demand for protective gloves skyrockets in the face of Covid-19. According to a report in the MalayMail, the Malaysian firm has had its ban lifted because US Customs and Border Protection believe it is no longer producing rubber gloves using forced labour, and all gloves made after mid-March will be able to be imported to the US. The sanctions on WRP Asia Pacific were put in place in September.

More than 300 campaign groups worldwide are demanding that governments apply five core principles to tackle the Covid-19 crisis, to pave the way for a ‘just recovery’.  The demands are co-signed by Indigenous Peoples organisations, labour groups and unions, feminist organisations, development agencies, climate and environmental NGOs, health, youth, and religious bodies and local activist groups from every continent.

The outbreak has prompted Australia’s largest industry superannuation fund, AustralianSuper, to reportedly cut the value of its A$30bn (€16.5bn) unlisted real assets by 7.5%. IPE Real Assets cited CEO Ian Silk as saying the move was “so that members can have an up-to-date picture of their superannuation balances”. It comes after the government let super fund members draw down up to $20,000 worth of savings over two years. The UK financial authorities are giving listed companies an extra two months to complete their audited financial statements.

JUST Capital, the US not-for-profit group, has launched a tracker of how the largest public employers are responding to coronavirus. It found that, so far, only 4% have announced any layoffs, and 7% have furloughed staff. “This is a moment where the promise of stakeholder capitalism will truly be put to the test,” said CEO Martin Whittaker.