SKAGEN Insight A Global Shadow Activist Fund Portfolio Manager: - - PowerPoint PPT Presentation

SKAGEN Insight A Global Shadow Activist Fund

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Portfolio Manager: Tomas Johansson

• Portfolio Manager
• SKAGEN Insight (1 year)
• SKAGEN Global (2 years)
• Experience working at leading activist fund,

Cevian Capital (6+ years)

• Strong educational background
• Master’s, Corporate Finance - Stockholm School of

Economics

• Master’s, Industrial Engineering and Software

Design - KTH Royal Institute of Technology

• Master of Laws (LL.M.) - Stockholm University

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1. Traditional activist funds create a lot of value, but this is consumed by high fees; and 2. Value creation happens when campaign is publically known. → Opportunity to generate excess return by ”shadowing” activists.

SKAGEN Insight – A global “shadow activist” fund New innovative concept

SKAGEN Insight targets 30-40 of the most attractive activist campaigns globally. SKAGEN Activist Insight

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Traditional activist funds

Investor concerns Why?

High fees

Strong performance and resource-intensive investment processes have allowed funds to charge 2&20 type fees.

Lack of diversification

Home market bias and highly concentrated portfolios reduce diversification and increase risk.

Multi-year lock-ins

Risk of damaging the value-creation process at companies.

Significant minimum commitments

Resource-intensive investment processes require significant investment.

Traditional activism is a successful approach but expensive and does not offer liquidity.

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Activist “locked-in” Fast money in & out Disclosure (net) Discount Exit Activist disclosure Activist return 0 % Insight return Return Time Activist pre- disclosure expected return Activist holding period Insight holding period Value creation inflection Insight entry

Shadow activism – the concept

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Shadow activism

Key benefits Why?

Higher expected gross returns

More efficient capital cycle means same money-weighted return translates into higher annualized return.

Lower fees (= higher net returns)

Less resource-intensive investment process equals lower costs for everyone.

Daily liquidity

No need to lock-in investors because Fund can scale positions without damaging the value-creation process at companies.

Negligible minimum commitment

Fund suitable for investors that have not been able to access traditional activism.

Lower risk

More diversified portfolio from a geographical, industry and activist principal perspective.

Offers the same fundamental exposure as traditional activist funds but in a smarter way.

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Focus on improving companies

Investment cases touch several themes:

Structural Improvement Strategic Improvement Operational Improvement Financial Improvement Governance Improvement

Activists are able to raise the boardroom temperature, which creates value for all stakeholders.

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Investing in SKAGEN Insight in an uncertain world Short-term volatility is a medium-term opportunity

Market volatility catalyzes positive change in the real world and supports stronger medium-term outperformance.

Year Return (€ %) Excess return

15/1/18 – 15/6/18

2018 ITD

• 3.31%

3.56%

• (Inception date, 21 August 2017)
• Launch date B-class, 15 January 2018

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SKAGEN Insight Largest Holdings

Source: SKAGEN AS as at 8 June 2018

Number of companies: 31 Active share: 98% Holding Country Sector %

ThyssenKrupp GERMANY Materials 7.2% Teikoku Sen-I JAPAN Industrials 5.1% Diebold Nixdorf UNITED STATES Information Technology 4.9% Eltel SWEDEN Industrials 4.8% Ericsson SWEDEN Information Technology 4.7% Mondelez UNITED STATES Consumer Staples 4.1% Conduent UNITED STATES Information Technology 4.1% Hertz UNITED STATES Industrial 4.0% Perrigo UNITED STATES Healthcare 3.9% General Electric UNITED STATES Industrials 3.9%

Overall - Total 46.7%

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Example: ThyssenKrupp (7.2%)

Company overview

TKA is a technology holding company operating 6 business: Elevators (group’s crown juvel), Steel Europe, Components Technology, Materials Services, and Steel Americas (pending sale).

Investment thesis (excerpt)

• Classic case of a conglomerate trading as its least attractive part

(European Steel operations).

• Structural change process starts with pending Tata JV

(separation of steel activities).

• Opens up roadmap to maximize value of core capital goods

businesses.

• Structural change augmented by cultural shift

(TKA has sold the private jet…)

Activist involvement:

• Cevian Capital (~20%) sits on the supervisory board.
• Elliott just announced they are building a stake.

Structural Improvements

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Company overview

Fire hoses were once the core of Teikoku’s business (still commands 50% market share), but it has transformed into a supplier of a variety of disaster prevention products, including nuclear energy disaster response goods and hazardous materials detection systems.

Investment thesis (excerpt)

• Inefficient capital allocation is destroying shareholder value.

Currently, EV is near zero (balance sheet is loaded with cash), which is bizarre for a well-run profitably growing business.

• Unwind of cross-shareholdings will lower financial risks, boost

ROE, and support a re-rating of the core business.

• Shareholders grow more vocal following Prime Minister Shinzo

Abe’s push to strengthen corporate governance in Japan.

Activist involvement:

• Sparx (5%) has launched a campaign.

10 20 30 40 50 60 Market value Net cash Enterprise value

Capitalization (¥bn)

Example: Teikoku Sen-I (5.1%)

Financial Improvements