This publication recently interviewed a new shareholder activism platform and app under the name of "Troop," and discovered more on how it intends to carve out business in this sphere.
Amid the gyrating fortunes of “active” and “passive” investing, the former approach appears to be gaining traction in more challenging markets. And a subset of active approaches is investors trying to force change from listed firms.
As digital technology accelerates, the field of shareholder activism is spawning a new breed of operator that isn’t your “Gordon Gekko” operator of movie clichés (or even something rather more respectable). Step forward a new, US-based business called Troop, founded by Felix Tabary and Zen Yui. They were motivated by the rise of new brokerage apps and platforms, including the saga of how investors employed social media in the GameStop share trading drama of early 2021.
“We’re looking to engage with disgruntled shareholders who want to unlock value,” he told Family Wealth Report in a recent interview.
In 2022, Troop said it raised a $4.3 million seed round co-led by Northzone and BlockTower Capital for what it called a “collective bargaining platform for everyday investors.” The raise brings its total funding to $6.1 million to date. Troop is a community app for shareholders to collectively take united positions and affect how listed companies are run.
“The Troop platform brings together all the elements of a successful shareholder activism campaign: shareholder letter writing, the formation of a shareholder block united around a strategy and a set of demands, filing, regulatory, and compliance considerations, proxy solicitation, and public relations, all in the same place,” Tabary told FWR. “In today’s markets, where publicly traded companies are still awarding executives unreasonably excessive compensation despite often subpar results, `shareholder activism in a box’ is the only effective way to regain control, influence, and respect for these companies' shareholders and rightful owners.”
There’s plenty of activism out there. For example, at Lazard Capital Markets Advisory, part of Lazard, the firm has noted a rise in the phenomenon of “swarming,” in which activists – often with competing agendas – pursue the same target concurrently or in short succession. Lazard said it has also found “record activity” in Europe and early market reactions to the universal proxy rule in the US. Mergers and acquisitions activism is a theme, being fueled by a desire to break up firms; another is a desire to fire boards and replace them. (In banking, for example, there’s been the saga of Ping An and its calls for HSBC’s business to be broken up.)
Firms such as banks also make a point of defending businesses against activists. Earlier in September, for example, Bank of America overtook several rivals to rank as the top financial advisor to companies targeted by activist investors in the first six months of 2023, according to data published by LSEG (source: Reuters, September 6). In the first six months of this year, BoA advised on 33 campaigns, including defending Salesforce against prominent activist house Elliott Investment Management.
Data on whether all this work pays off is mixed. A report by Goldman Sachs in May this year said there isn’t conclusive evidence that it always delivers. Activist investors launched 148 campaigns against 120 US corporations in 2022, rising 20 per cent on a year ago. The US firm analyzed more than 2,100 shareholder campaigns since 2006 where activists attempted to add value to companies listed on the Russell 3000 index. Goldman found that the median stock targeted by activist investors outperformed its sector by 3 percentage points in the week after the launch of a campaign. However, excess returns were short-lived and typically turned negative after six months.
Within the hedge fund world, activists fall under the “event-driven” strategy category. Such funds also bet on outcomes of M&A tussles. According to Hedge Fund Research, event-driven funds returned 2.99 per cent in the first half of the year, lagging wider gains in the hedge fund industry.
A new angle
Whatever the data says, though, Tabary is convinced that a modern, tech-driven player such as Troop has a role to play.
A French-American Cornell graduate with several years of experience in enterprise sales and fintech, Tabary grew up in France. He worked at Bloomberg, and engaged with activist hedge funds, where he learned about activist investing. Motivated by the energy surrounding the emergence and growth of online brokerage apps, he and his co-founder Zen decided to build a platform at the intersection of collective action, the financial markets, and shareholder activism.
This business model gives users the ability to hold a “referendum” on the businesses they invest in, he said.
FWR and Tabary talked about a current issue of how, in an age of exchange-traded funds, “passive” mutual funds and other index-driven forms of investing – driven by the likes of Vanguard, BlackRock and others – there has been a disconnect between end-investors and the firms they hold. “It is corporatism versus ownership,” Tabary said. He noted, ironically, that the founder of Vanguard, the late John Bogle, had warned about this problem.
One episode that inspired Tabary to look at activism was the case (June 2021) of ExxonMobil, where a small activist hedge fund called Engine No 1 mobilized some of the oil producer’s major shareholders to fill two of the company’s board seats with directors who were more conscious of climate change risks.
As far as such stories are concerned, Tabary is convinced that there are more opportunties to be found. And he wants Troop to engage more with private banks, family offices, asset and wealth managers and others serving high net worth individuals who want to engage more effectively with the companies in their portfolios.
Owning stocks and companies
Tabary thinks the corporate world has structural problems around control, accountability and performance.
“The way that people build up business in the US is totally different from the way they own stocks. We often purchase individual stocks in a company like we purchase toothpaste in a grocery store, generally motivated by an emotional response to a brand we recognize and appreciate,” he said, arguing that the business of owning capital in a firm is in fact entirely different.
“Traditional professional investment managers consider a very different set of factors when making investment decisions, such as a profit-centric definition of fiduciary responsibility and shareholder value, but governance matters require more nuance, a broader perspective, and a longer-term outlook,” he continued.
The term “shareholder activism” can be very widely defined, but at root it is about unlocking value from firms where it has been allegedly trapped. (This is arguably a reason why Japan’s stock market has improved recently because of corporate governance reforms.)
Our founding principle is that corporate governance is our collective responsibility. Activism is the mechanism through which we can have a say in how publicly traded companies are governed.
Asked about there being a lot of focus on ESG investing, Tabary said Troop campaigns on such issues “so long as there is a compelling and clearly identified material financial risk mixed in.”
Lazard Capital Markets Advisory puts out a report on activism periodically, and the evidence suggests that leading activist hedge funds consistently beat the market with successful activist campaigns.
The team at Troop is looking at proxy advisory and pass-through voting, potentially leveraging today’s more sophisticated AI tools and therefore helping asset managers and fund managers to ensure that their clients' values and desires are reflected in their proxy-voting ballots, Tabary said. As a result, he’s keen to connect with family offices managing large equity portfolios, institutional asset managers, and fund managers.
Troop is a new business, and has yet to test its activism service across a full AGM/shareholder voting season that typically runs from early spring to early summer. So Tabary knows that results will be important, and he is confident that his business can add value in a challenging financial environment. If this works out, he should attract fans in the wealth sector.