Jana Partners Deep-Sixes Two Funds in Favor of Activism

Forget those equity-based hedge funds. Jana Partners is ditching two equity funds and doubling down on activist investing.

The firm characterizes the new strategy in a dry way as it describes its goal of shaking up managements in firms where it invests. “We will transform into a firm solely dedicated to our core competency of shareholder engagement,” said Barry Rosenstein, Jana’s founder, in a letter to investors.

The establishment will shut down the Jana Partners and Jana Nirvana funds, and is keeping its $1.5 billion Jana Strategic Investing fund, which specializes in activism. It will also launch a social activist fund, called Jana Impact Capital, to be managed by Charles Penner and Daniel Hanson.

The firm has chosen to pursue activist investing harder because it says these areas perform better than their newly liquidated funds.

For more stories like this, sign up for the CIO Alert newsletter. 

“This is where we have delivered our best returns for investors, developed a real competitive advantage, made our mark on numerous industries,” said Rosenstein’s letter.

Since the firm’s inception in 2001, it regularly posted double-digit returns that surpassed the market. Then came the 2008 financial crisis. Jana’s regular hedge funds have underperformed in recent years. The Jana Partners fund fell nearly twice as hard as the market in 2018, although the industry as a whole lost around 4%, according to HFR. Stock-picking funds overall, such as Jana Partners, fell about 7% in 2018.

The activist strategy, however, is a different story for Jana.

Since its 2010 launch, the Jana Strategic Investing fund has returned an average of 15% each year. One of the edges this portfolio has is its non-traditional model. Rather than function like a typical “2 and 20” hedge fund, the activist fund operates like a private equity vehicle, a testament to Rosenstein’s roots in the space.

Jana regularly collaborates with institutional investors to help meet its environmental, social, and governance (ESG) goals with companies it takes a stake in. Last year, the firm teamed with the $214.9 billion California State Teachers Retirement System (CalSTRS) against Apple to push the tech titan into developing ways to help battle smartphone addictions in children.

Other notable ESG practices from Jana include its Whole Foods criticisms leading to the grocer’s Amazon sale and calling on chip manufacturer Qualcomm to slash costs and use the proceeds to reform its compensation structure.

Jana Partners could not be reached for comment.

Tags: Activist Hedge Funds, ESG, Hedge Funds, Jana Partners LLC

The board of the Seattle City Employees’ Retirement System (SCERS) has removed BlackRock from its watchlist, saying that the world’s largest money manager has made changes to address its proxy voting and how it engages with corporations on their environmental, social, and governance (ESG) records.

BlackRock was placed on the Seattle pension system’s watchlist in December 2016, show board minutes. SCERS Chief Investment Officer Jason Malinowski and other investment staffers had argued that the money manager should be put on the list because of ESG concerns, show meeting minutes.

Jill Johnson, investment strategic advisor with the Seattle system, noted back in 2016, “Specifically, SCERS is concerned with BlackRock’s: (1) reticence to oppose management; (2) limited focus on environmental and social issues; (3) inconsistency between their proxy voting record and internal policies and public pronouncements; and, (4) limited transparency on investment stewardship activities.”

Malinowski told CIO Tuesday afternoon that policy changes by BlackRock were responsible for the money manager being removed from the watch list.

For more stories like this, sign up for the CIO Alert newsletter. 

“We think our discussions and those of other institutional investors caused them to rethink their position and make positive changes, “ Malinowski told CIO. “We would call it a success.” Ironically, before joining SCERS in 2014, Malinowski worked at BlackRock as a managing director, head of risk and quantitative analysis for alternative investments.

The pension system approved the removal of BlackRock from the watchlist by a 5-0 vote at its meeting on Dec. 13, according to meeting minutes. SCERS has $356 million of its $2.9 billion in assets under management invested in BlackRock MSCI World ex-US Fund, a passive index fund strategy.

As the world’s largest money manager with an AUM of more than $6 trillion, BlackRock is typically the largest shareholder in corporations around the world. Its positions, which can amount to 5% or more of a company’s holdings, are significant. Consequently, its influence has put the spotlight on the company’s proxy voting record at corporate annual meetings.

ESG shareholder resolutions calling for greater disclosure around climate change, particularly at oil and gas companies, are expected to continue to put the spotlight on BlackRock as the 2019 proxy season gets underway.

Malinowski provided CIO with a staff memo explaining why the money manager was taken off the watch list. The memo cited BlackRock’s vote yes management of ExxonMobil and Petroleum at the company’s 2017 and 2018 annual meetings, and in favor of shareholder resolutions calling for more disclosure on climate change risk. SCERS also voted against management and for more disclosure.

Back in 2016, it was BlackRock’s vote against shareholder resolutions calling for climate change stress testing at Exxon Mobil and Chevron that helped put BlackRock on the SCERS watch list, according to meeting minutes. SCERS had supported the stress testing.

The SCERS Dec. 13 memo said that BlackRock was reluctant to challenge management before 2017, and that until then, it had never voted in favor of a climate disclosure requirement that was opposed by corporate management.

The memo said that has changed partially, given the money managers’ votes against management at the two large oil companies.

“BlackRock’s support of climate-related shareholder resolutions remains limited, but it does highlight that there are certain instances where the firm is willing to oppose management,” it said.

The SCERS memo said that while BlackRock Chairman and CEO Larry Fink had sent a 2016 letter to corporate CEOs on the importance of ESG, “this support was not reflected in the firm’s own proxy voting. The ESG emphasis did not appear to be uniformly integrated throughout the company, perhaps because the investment stewardship function had previously been of limited size and relevance to the firm.”

It goes on to say that “the situation has improved” with company vice chairwoman Barbara Novick expanding her executive role to oversee investment stewardship, Michelle Edkins, global head of investment stewardship, relocating to BlackRock’s New York headquarters, and a doubling of staff on the investment stewardship team. The team consists of approximately 40 professionals, the memo says.

The SCERS memo also says that BlackRock has improved transparency on its engagement positions with corporations, publishing on its website its positions and explanations on its votes on key shareholder resolutions.

The pension system’s removing BlackRock from its watch list will not take the spotlight off the asset manager. Advocacy groups continue to argue that BlackRock has not done enough to challenge companies on their ESG records.

BlackRock argues that it has made ESG a priority, but it also believes in engaging companies before taking proxy voting stances.

Malinowski said it’s clear that BlackRock has made progress since it was put on the SCERS watch list over its ESG activities.

“No one is perfect,” he told CIO. He said he believes BlackRock’s record will continue to improve over the next few years as it builds on its improved ESG record in 2017 and 2018.

Tags: BlackRock, Jason Malinowski, Pension, Seattle City Employees’ Retirement System