A new Washington D.C. based trade association has been created a select group of hedge funds. The new association is named the “Council for Investor Rights and Corporate Accountability,” or “CIRCA.” According to the Wall Street Journal, “it is the first coordinated effort by activists to make their case to lawmakers and the American public that their investment strategy helps, rather than harms, companies and the U.S. economy.”
CIRCA is supported by a consortium of five different activist firms, but does not name them in the press release. However, Reuters reports that, “According to a person with direct knowledge of the matter, the group’s backers are: William Ackman of Pershing Square, Carl Icahn, Daniel Loeb of Third Point, Paul Singer of Elliott Associates and Barry Rosenstein of Jana Partners.” The five backers manage approximately $90 billion according to the Wall Street Journal.
In recent weeks activist investors have come under fire and have attracted the attention of politicians. In March Senators Tammy Baldwin (D-Wis.) and Jeff Merkley (D-Ore.) introduced S.2720, “The Brokaw Act.” The act was cosponsored by Senators Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.).
According to Sen. Baldwin’s press release on The Brokaw Act, “The problem of short-termism is real and there is growing chorus who believe short-termism is holding America back from reaching its full potential to create stronger economic growth for our nation. Put simply, short-termism—also known as “quarterly capitalism”—is the focus on short time horizons by both corporate managers and financial markets. It results in corporate funds being used for payouts to shareholders in the form of dividends and buybacks rather than investment in workers, R&D, infrastructure, and long-term success. Activist hedge funds are leading the short-termism charge in our economy. They abuse lax securities laws to gain large stakes in public companies. Once there, they make demands to benefit themselves at the expense of the company’s long-term interests. The most common demands are for more debt, stock buybacks, reduced R&D, cost-cutting, layoffs, and general reduction any investment in long-term growth.”
In CIRCA’s press release Senior Advisor Rob Collins argues, “CIRCA was founded on the widely accepted idea that a well-functioning system of checks and balances between boards of directors and shareholders is fundamental to long term economic growth and U.S. prosperity,” according to the Reuters report.