11 December 2023 Financial Analysts Journal Volume 80, Issue 2

Shareholder Activism in Small-Cap Newly Public Firms

  1. Emmanuel R. Pezier
  2. Paolo F. Volpin
Analyzing a private dataset of a UK fund’s engagements with small-cap newly public firms, authors find that “behind the scenes” engagements resulted in cumulative abnormal returns of 8%–10%. Returns are attributed to engagements, not stock picking.
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We examine a private dataset of engagements by a UK fund in small-cap newly public firms. The fund inherits unwanted holdings from disparate investors and earns fees liquidating its portfolio. It considers activism only when blocks cannot be exited efficiently. Engagements are with firms that have founder chairpersons or CEOs, other blockholders thought to be supportive, and few outside directors. Engagements conducted behind-the-scenes, without involving other shareholders, are strikingly successful and result in cumulative abnormal returns of 8% to 10% when objectives are met. The fund outperforms benchmarks, and we estimate that abnormal returns derive mostly from engagements rather than stock picking.

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