May 16, 2017 / 4:59 PM / 2 months ago

ValueAct practices what it preaches on succession

3 Min Read

Jeffrey Ubben, Founder & CEO at ValueAct Capital, speaks on the Reuters Newsmaker event "The Future of Shareholder Activism" in Manhattan, New York, U.S., February 22, 2017.Andrew Kelly - RTSZW7F

NEW YORK (Reuters Breakingviews) - Jeffrey Ubben has long been a different kind of activist investor. The ValueAct Capital founder largely avoids the limelight and mostly works with companies behind the scenes to improve performance, often focusing heavily on corporate governance. Now Ubben is practicing what he preaches by triggering his own orderly succession.

In passing control of the firm’s $16 billion portfolio to his longtime deputy, Mason Morfit, Ubben is promoting a degree of continuity that’s rare in the hedge-fund world. Morfit was one of his first hires after ValueAct's founding in 2000, and he has played a key role in some of its most prominent investments, including holding board seats at Microsoft and Valeant Pharmaceuticals.

Having learned the ropes over nearly two decades, Morfit is positioned to continue the kind of constructive activism that has produced annualized returns of 15 percent a year, according to a Reuters report. Ubben will remain as chief executive, where one main challenge will be to support his new chief investment officer without stepping on his toes.

Morfit has his work cut out for him. Despite rising equity markets and signs that individual stocks are once again being traded on their merits rather than en masse – an environment that stock-pickers hope will favor their approach over index investments – the typical hedge fund has failed to perform remotely well enough to justify the industry's high fees. The HFR Global Hedge Fund index is up a little over 2 percent so far this year, trailing the 7 percent gain in the S&P 500 Index. At a Reuters forum on activism in February, Ubben said ValueAct had been selling holdings and building a $3 billion cash position because it regarded stocks as too expensive.

Other hedge funds face similar challenges, but few have handled succession as deftly as ValueAct. Ray Dalio has shaken up management at industry giant Bridgewater twice in the past year, while Eric Mindich never groomed a successor at Eton Park before pulling the plug on the multistrategy firm in March, for example. Fund founders looking to preserve their legacy can learn from Ubben’s example.

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