Activist investing continues to dominate news headlines; this week prominent hedge fund managers Bill Ackman and rival Carl Icahn "made up" after their very public fight over Herbalife (HLF), where they were agitating on opposite sides of the trade in the media.
Meanwhile, The Wall Street Journal reports Coca-Cola (KO) will likely revise its executive pay plan after receiving pressure from its billionaire shareholder Warren Buffett, although the plan was approved by shareholders last week. Buffett's private lobbying and decision not to vote came after a public campaign from Wintergreen Advisors Chief Executive David Winters, a smaller shareholder who felt the compensation plan was excessive.
When it comes to activist investing, is it productive and when? We discussed the issue at the Milken Institute 2014 Global Conference with Christopher Ailman, chief investment officer of California State Teachers' Retirement System (CalSTRS), where he overseas a portfolio valued at more than $180 billion.
"We look at that world as really between the aggressive activists and more of the engagement activists," he tells us in the video above. "We invest with engagement people, who want to get on the board and who want to see change in a corporation. The people that stand on the street with a bullhorn or use the media to shout at companies, we think [these tactics] are less effective."
But why invest with hedge funds or private equity firms at all, when the fees are so much higher and research has found that index funds outperform actively managed money? Check out the video to find out.
Meanwhile, CalSTRS is known for taking a stand on issues, too. It's been part of its mission for decades, but the pension fund received a lot attention last year when it moved to divest from firearms companies that manufacture weapons that are illegal for sale in California, in the wake of the Sandy Hook shooting. It's an issue they are still focused on.
Ailman says there are a number of social issues that he considers when making investment choices; one issue is climate change.
We asked about agitating over CEO pay in the video below, which has received scrutity from the public and some investors. Ailman said they do focus on this issue as part of a long-term effort.
He says there is "no question about it" that CEO pay is too high.
"In the 1980s the level of average pay to CEO pay was in a reasonable range, but it's just gotten completely out of whack," he says.
What he says really frustrates CalSTRS is when a company will pay a big signing bonus to bring somebody in as CEO. "To us it means the board didn't do their job...they didn't build in succession planning, haven't been developing their talent," he says. He adds that often they see CEOs come in, work three years and suddenly leave with a golden parachute. "That's a waste of shareholder money in our view," he argues.