Cevian Capital: The quiet activist hedge fund

Photography: Alex Griffiths

Lars Forberg of Cevian

Active is an apt description of Lars Förberg, one of the co-founders of the €12 billion hedge fund. When Financial News met the energetic Swede for a rare interview at a plush Mayfair restaurant, he had just returned from Nepal where he had been trekking with business partners. But showing no signs of jet lag he explained how it was the very same table where he had negotiated the firm’s investment in Rexel, the Paris-listed global electronics distributor, just a few months earlier.

“It was clear to us that Rexel was not going into the right direction, and one of the things we felt we needed to do was bringing in new top management,” Förberg said.

So he had breakfast with Ian Meakins, who had already been planning to leave his role as chief executive officer of Wolseley, the largest distributor of plumbing and heating appliances, in which Cevian Capital was also involved, to discuss the possibility of him taking on the role of non-executive chairman.

“He had a perfect track record for doing that,” Förberg said. “He was going to leave Wolseley and when we spoke about it [with Rexel], it was not in a hostile way – they thought it was a good suggestion and embraced the idea.” The company ended up appointing Meakins and putting in place a new governance structure at the same time.

While lining up new senior board members is not uncommon among activist investors, attempting to make changes in a non-hostile way is slightly more unique.

Förberg, who founded Cevian with Christer Gardell in 2002, said the firm has a different methodology to some others. “The notion of an activist hedge fund manager is that the activist goes in and is trying to drive change by moving in, embarrassing management, shouting to the media, writing angry letters and either trying to change the financial structure of the company or having it sold.”

Förberg described his push for change as “normally, a constructive discussion” because of its long history of having served on as many as 40 boards across many different industries and therefore the experience of what measures can be implemented and what not.

“What we are discussing with these companies and what we are trying from the inside are measures that are implementable,” he said. “We have a virtuous circle in terms of influence.”

Förberg said they usually received trust from other investors, because they were aware of Cevian’s track record in aiming of increase the share price over the long term.

The firm’s cause has also been helped by a shift in mentality among traditional long, passive investors, such as pension funds, which are increasingly more engaged and likely to back proposals that would improve the performance of the company over the long-term.

“Twenty years ago a long-only shareholder would think that they had only rights, but no responsibilities, whereas today most long only shareholders they understand that being a shareholder brings not just rights but also responsibilities,” Förberg said.

Such an approach appears to be working.

Cevian Capital II has returned an annualised 18% since its launch in July 2006 to the end of October 2016, performance data seen by FN showed, making it one of the best-performing managers in Europe. Over the same period, the annualised returns for the HFRI Event-Driven (Total) Index, of which activist hedge funds are part, were 4.3%, according to HFR data.

Years of research

Unlike many other activists, Cevian only invests in situations where it aims to push for change. Key factors that determine whether it will invest are if it deems the company’s share price attractive, can see how it can be improved and feels there is a way to get change through.

Such investing is work intensive. “Before we make an investment, we typically spend a number of years researching the company – there are few investments that we make where we spend less than one year researching the company,” Förberg said.

Cevian’s level of scrutiny of each of its investment is partly a function of its small portfolio. It has just 12 holdings in its portfolio, meaning it has an average investment size of €1 billion, with a holding period of between four and six years. It means its 30 investment professionals make on average less than two investments per year.

Desk research forms a small part of this investment research process. “We fly around… we meet their competitors, their suppliers, their customers, so we really understand where the entire industry and the business itself – where it is coming from, where it is today and where it is going, ” he said. “That is of course a laborious task, but we have the time and resources to do that, and therefore an incredible competitive advantage.”

Ups and downs

This does not mean all investments are successful. Förberg said industrial construction and engineering group Bilfinger in Germany “will ultimately turn well, but has been problematic so far” because of regulation in Germany that has hit its power division and because of broader changes in the gas industry in Europe.

“Management and board decisions that were made that were not correct, and we have therefore change management on the board and we are correcting those mistakes.” Bilfinger declined to comment.

But there are examples of success. Förberg said he has just given up his board seat at Danske Bank, the second-largest bank in Scandinavia, after three years despite the fact the firm has not sold out of the investment, because the investment has been so successful there was no longer a need for him to sit on the board.

During the first year in 2013, Förberg had 20 board meetings, 20 committee meetings, and eventually helped appoint a new chief investment officer.

Förberg said that when Cevian decided to buy into Danske during the global financial crisis, it knew that it had a sound business but needed “conviction” to buy into a troubled bank that could over the short term lose 25% of its share price.

“Our perspective was, what is the real value of this business five years from now and then we made that investment,” he said. “In this case, many of our investors they were seeing us doing this and at the same time they were investing in other hedge funds that were shorting the Danish sovereign.”

The firm will be hoping for other cases where its partners are no longer needed on the board. In two thirds of its investments, Förberg, Gardell or one of the firm’s other partners who are authorised to do so, take up board positions.

They currently hold board positions in engineered ceramics company Vesuvius in the UK, industrial conglomerate ThyssenKrupp, logistics company Panalpina Welttransport Holding in Switzerland, the truck manufacturing division of Volvo in Sweden, industrial machinery company Metso, information technology services company Tieto and technology company Valmet in Finland.

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