| Hedge funds among UK's largest equity owners |
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| 20/06/2005 | |
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Just as Gerhard Schröder, the German chancellor is responding to concerns in his own country about the influence of hedge funds on the economy, State Street Global Investors (SSGA) estimates that hedge funds control about 3.8% of the UK equity market, with potential for this proportion to rise rapidly if value opportunities arise. Warnings have yet to be issued by the British government. "A large proportion of the equity hedge funds will be model driven investors whose investment portfolios are not the result of company visits and analyst briefings and would be less interested in activism or corporate governance issues", observes Rick Lacaille, SSGA's Europe CIO. On the other hand, some hedge funds with long-only positions in a reduced number of holdings are highly active, seeking changes within companies so as to generate further value. One good example of such a hedge fund is The Childrens Fund (TCI), which played a substantial role in the merger attempt of the Deutsche Börse thanks to its 5% stake in the German stock market. Those hedge funds tend to accumulate shares over time at the expense of quantitative-focused hedge funds. "As mergers get underway, the share register tends to shift in favour of the specialist hedge funds who have a deeper understanding than the rest of the sector in the legal risks and probability and payoff of the different outcomes", says Rick Lacaille. This accumulation of share by investors that are often based outside the UK is not a hedge fund exclusive trend. SSGA noted that UK companies, as their counterparts in other countries, are now being increasingly owned by foreign interests as a result of institutional investors and companies themselves hiring foreign companies to manage their assets. Global allocation Institutional investors in just about all markets are shifting from domestic to global. In turn, institutions tend to use a different set of asset managers whose assets come from investors in many countries. This has led to the growth of large global investment houses at the expense of some of the more domestically focused players and internally managed funds. "The effect is the decline of the concentrated ownership and control of a small number of domestic asset managers and insurers, and with it a more challenging picture for company management", says Rick Lacaille. SSGA says that estimates from official sources suggest that overseas investors owned an average of 32% of the U.K. equity market at the end of 2002, the current percentage being undoubtedly higher now. Makinson Cowell, a specialist corporate advisory business, estimates that North American institutions control 21%, while their U.K. counterparts have shrunk to around 49%. European investors are less significant at 8%. J.L. |
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