Thursday, 12 July 2018

Ryanair & employment-related disclosures

As a lot of people in my world know, there are a number of initiatives underway to try to improve disclosure by companies of information related to employment practices. This is in response to blow-ups at a number of companies that have had controversial labour practices, such as heavy reliance on contingent/indirect employment.

So it may come as a bit of a surprise that one company that has faced a lot of scrutiny, and more recently some significant problems, as a result of its employment practices actually discloses a bit less data that some investors used to find useful than it used to.

Here is an excerpt from Ryanair's 2011 annual report:

Here is the same section from Ryanair's 2012 annual report:

And here is the same from the 2017 annual report:

Ryanair seems to have stopped splitting out costs for directly and indirectly employed staff from 2013. Although splitting out the costs doesn't tell you a lot more, it does make clear how important the use of indirect employment is to the company. And anyone who follows it closely will know that this is one of the major issues that Ryanair's contract workforce dislike.

It might be something that investors that engage with the company want to have a look at.

Hat-tip: JB

Wednesday, 11 July 2018

"Open vs Closed"

If it's not obvious, let me be clear that I really hate the suggestion that the "real" divide in politics these days is "open" v "closed". In purely linguistic terms it is such an obviously loaded division - doors that are "closed" are bad, a business that has "closed" is dead, a book that is "closed" is unreadable and/or finished. No-one wants to be described as "closed" if the other option is "open", and I suspect everyone gets this on a very fundamental level. If you're read a bit about metaphors the use of spatial terms is a deep-rooted thing, and it's always pretty clear which is better/worse.

Add to this the fact that I am still yet to see advocates of the open/closed way off looking at the world describe themselves as "closed". They are always the open-minded, mobile ones. And I don't see much evidence people who align with "open" see anything to learn from the "closed". Rather the lumpen "closeds" need to be dragged kicking and screaming into the reality of a globalised world. I can't think this is going to end well.

Anyway, in this vein, I recently started reading an oldie by Zygmunt Bauman and it rang very true with me.
All of us are, willy-nilly, by design or by default, on the move. We are on the move even if, physically, we stay put: immobility is not a realistic option in a world of permanent change. And yet the effects of that new condition are radically unequal. Some of us become fully and truly 'global'; some are fixed in their 'locality' - a predicament neither pleasurable nor endurable in the world in which the 'globals' ["opens" eh?] set the tone and compose the rules of the life-game.
Being local in a globalised world is a sign of social deprivation and degradation....
An integral part of of the globalising process is progressive spatial segregation, separation and exclusion. Neo-tribal and fundamentalist tendencies, which reflect and articulate the experience of people on the receiving end of globalisation, are as much legitimate offspring of globalisation as the the widely acclaimed 'hybridisation' of top culture - the culture at the globalised top. A particular cause for worry is the progressive breakdown in communication between the increasingly global and extraterritorial elites and the ever more 'localised' rest.
And a bit I really connect with:
Among all [those] who have a say in the running of the company, only 'people who invest' - the shareholders - are in no way space-tied; they can buy any share at any stock exchange and through any broker, and the geographical nearness or distance of the company will be in all probability the least important consideration in their decision to buy or sell.
In principle there is nothing space-determined in the dispersion of the shareholders. They are the sole factor genuinely free from spatial determination. And it is to them and them only, that the company 'belongs'. [well, not really, but...] It is up to them therefore to move the company wherever they spy out or anticipate a chance of higher dividends, leaving to all others - locally bound as they are - the task of wound-licking, damage-repair and waste-disposal. Whoever is free to run away from locality, is free to run away from the consequences. These are the most important spoils of victorious space war.  

Sunday, 8 July 2018

Politico commentary

This (from this) is pretty good on the commentariat:
"[J]ournalists weren't consciously deciding the equilibrium. The journalists were writing 'serious' articles, i.e. articles about Alice and Bob rather than Carol. The equilibrium consisted of the journalists writing sports coverage of elections, where everything is viewed through the lens of a zero-sum competition for votes between Alice's team and Bob's team. Viewed through that lens, the journalists thought a gay marriage endorsement would be a blunder. And if you do something that enough people think is a political blunder, it is a political blunder. The journalists' sports coverage will describe you as an incompetent politician and primates instinctively want to ally with like winners. Which meant the equilibrium could have a sharp tip over point, without most of the actual population changing their minds sharply about gay marriage in that particular year. The support level went over a threshold where somebody tested the waters and got away it, and journalists began to suspect it wasn't a political blunder to support gay marriage, which let more politicians speak and get away with it, and then the change of belief about what was inside the Overton window snowballed." 
I think this process is pretty important currently with respect to Labour. I think a lot of the commentariat believed that Labour explicitly articulating more left-wing economic ideas was A Political Blunder, and because they think that it became A Political Blunder with very little reference to the views of the public.

Then came the exit poll on 8 June 2017, and everything changed. It turns out you can advocate a more left-wing economic programme and not get demolished in an election. In fact it turns out that a lot of the public - including Conservative-voting members of the public - like these policies. I doubt the public's views actually changed, but the commentariat's views of the public's views did change. Now articulating those views is not seen as A Political Blunder, in and of itself (though the commentariat by and large hasn't moved to embrace them). Or, in the language of the excerpt, views about what is inside the Overton window have changed.

Things have obviously moved on in the past year. Some political commentators seem to want to go back to pre-8 June 2017. But to publicly advocate, say, public ownership of utilities is no longer A Political Blunder. Indeed, to defend the current system might be seen by some as more politically risky.

This does make me think a lot about Expert Political Judgement (something I have personally lacked over the past 5 years!) and the idea that we ought to rate members on the commentariat on their track record of political predictions.

Wednesday, 4 July 2018

Just one more thing about hedge funds...

In the middle of the Melrose bid for GKN there was a point when the merger arb activity seemed to be falling back. Specifically, the total shorts in Melrose in the FCA's list started dropping (having been building up steadily up till that point). And one of the more active players Davidson Kempner wound down its positions - both long GKN and short Melrose.

If you look at the historical short positions  in Melrose disclosed by the FCA (and collated very helpfully by the Shorttracker website) you can see the drop in shorting activity kick in at around halfway through March (I've hung the cursor on 15th March in the screenshot).

Why? Well, that was the point when Airbus came out publicly warning that it would find it hard to work with Melrose in the event of a successful takeover (FT story in the links is from 14th March). This was a very significant intervention, and obviously some hedge funds blinked.

Then, about a week later, Elliott Advisors came out very strongly in support of the bid (despite not being a shareholder and therefore not party to it!) and the total shorts started creeping steadily back up.

The lesson here is that interventions like the Airbus statement really do make a difference. In this case it negatively affected the views of presumably pretty sophisticated market participants of the likelihood of the bid succeeding, albeit only temporarily. Something to remember next time we come up against a bid we don't like...

NEX Group takeover & derivatives

Another takeover, another example of hedge funds piling in using derivatives. In this case its NEX Group, which is being taken over by US-listed CME Group. It's not hostile so it went to a vote and got a strong thumbs up.

I find this one interesting as it's another example of hedge funds running the merger arbitrage trade, albeit in uncontested circumstances. This is classic 'picking up pennies in front of a steamroller' behaviour. They are taking a punt on being to skim a bit off expected price movements (upwards in the target, downwards in the bidder). As far as I can see no-one claims there is any kind of market inefficiency that this behaviour is ironing out.

Anyhow, here's who is in the mix using derivatives, based on a quick trawl of rule 8.3 disclosures.

York Capital  (also active in GKN/Melrose) with 4.63%

Magnetar Capital - 1.2%

Carlson Capital - 1.95%

Omni Partners - 1.13%

TIG Partners - 1.27%

UBS O' Connor - 1.02%

PSquared - 1.9%

Sand Grove - 1.61%

Alpine Associates - 1.5%

Tuesday, 3 July 2018

Ownership and control

Here's something I wrote for work...

Ownership and control

If you’re a delivery driver whose movements are monitored remotely, or doing gig work through a platform like Uber or Deliveroo, you’re already seeing the impact of technology on work. Millions of other transport workers will have the same experience in the years ahead.

Too often, rather than liberating workers from drudgery, technology is something that is forced on them, undermining their occupational status and reducing their freedom at work. As a result technology often looks like a weapon to used against workers, rather than a tool to assist them.
Some far-sighted thinkers saw this coming. For example, writing in the 1970s, Harry Braverman, warned that technology was used to disempower and deskill workers:
The mass of humanity is subjected to the labour process for the purposes of those who control it rather than for any general purposes of “humanity” as such… Machinery comes into the world not as the servant of “humanity”, but as the instrument of those to whom the accumulation of capital gives the ownership of machines… [I]n addition to its technical function of increasing the productivity of labour — which would be the mark of machinery under any social system — machinery also has in the capitalist system the function of divesting the mass of workers of their control over their own labour.
Writing a decade earlier, and coming from a different political perspective, the economist James Meade offered a bleak view of future society if action was not taken to address some of the trends he saw in market economies:
There would be a limited number of exceedingly wealthy property owners; the proportion of the working population required to man the extremely profitable automated industries would be small; wage rates would thus be depressed; there would have to be a large expansion of the production of the labour-intensive goods and services which were in demand by the few multi-multi-multi-millionaires; we would be back in a super-world of an immiserized proletariat and of butlers, footmen, kitchen maids, and other hangers-on.
What both of them believed was that the problem was not technology itself, but rather who owned and controlled it, and therefore who benefitted from its rewards. Unless these questions were addressed, workers would suffer. If we fast forward to the 21st century, the world of the millionaire “tech bros”, Uber drivers and platform working, the views of Meade and Braverman look very prescient. But could the labour movement address these problems by focusing on the ownership of technology?

The question of ownership addresses two related issues of critical importance to workers — power and reward. It is not surprising that labour’s opponents defend current ownership models, since they put both power in the hands of management and ensure that they and their allies derive the most reward. In contrast, if we could expand worker ownership we could both increase our power at work and ensure that wealth is shared more equally at the point of production.

The terrain may be more favourable for this type of change than in the past. For many technology businesses, capital may be less important to them than labour. The dominant organisational model in business, the joint stock corporation, developed in an era of capital intensive businesses. For example, this was a highly useful organisational form during the construction of railways. Given the risk shouldered by providers of capital (shareholders), the model awarded them significant power within the firm.

But many public companies are now net contributors of capital to shareholders, as share buybacks increase. And technology firms in particular can be far less capital intensive.
In addition, the individual shareholders of the 19th century, placing their capital in a handful of businesses, have long since been supplanted by institutional investors managing billions or trillions of dollars’ worth of capital. These investors reduce their risk by investing across hundreds of companies, meaning that the failure of any one does not adversely affect them. In contrast workers bear “firm specific” risk — most of us only work for one business, and if it goes under we lose our job. Meanwhile for companies it is “human capital” that matters most.

So the current model seems to have its priorities upside down — it awards power to the party that bears less risk, and makes little contribution, but denies it to those without whom the business cannot function. Again this point has been identified by past thinkers, and even conservatives have sometimes acknowledged it. For example, the point was made by the Tory peer Lord Eustace in a speech in 1944:
The human association which in fact produces and distributes wealth, the association of workmen, managers, technicians and directors, is not an association recognised by the law. The association which the law does recognise — the association of shareholder-creditors and directors — is incapable of production or distribution and is not expected by the law to perform those functions. We have to give law to the real association, and to withdraw meaningless privilege from the imaginary one.
This could be addressed by rewriting company law, as Eustace envisaged, or it could be achieved through an expansion of worker ownership.

For example, what might Uber or Deliveroo look like if they were owned by those that work for the business? Clearly drivers or riders would have a direct interest in ensuring the apps that allocate jobs work well for customers. But equally, they would want to eliminate or alter features that are exploitive or invasive. At the same time, workers would directly benefit from the success of the company, rather than the seeing the fruits of their labour syphoned off by external investors.

Change could even be achieved within the current model. For example, public companies could be required to issue shares to worker funds which would enable them to build up a controlling ownership position. This need not be complete ownership of the equity, but having a sizeable position (say, upwards of 30% in each company) would mean that the workers in the company receive both a fair share of the wealth they create and exercise meaningful control. In countries where workers do not currently have representation in corporate governance, this ownership would also justify board membership or similar participation structures. In addition, having a worker ownership fund of this size, aligned to the business, would provide a defence against hedge funds and other speculators who might seek to take over or break up the firm.

Alternatively this approach could be scaled up, so that sectoral funds or even a national fund could hold the equity. This was broadly what Meade advocated — the creation of a national Citizens’ Trust — and a similar idea has recently been floated by the Institute for Public Policy Research. An advantage here would be that workers would be able to diversify their financial risk, although on the downside control might shift away from workers in a specific business to the fund. Nonetheless, the fact that think tanks are now looking at ownership again, suggests this is an idea whose time has come.

Monday, 2 July 2018

More hedge fund shenanigans

1. I had a quick Google to see if there are any more funds that use the generic blurb I've found in dozens of cases to avoid compliance with the Stewardship Code. And... yes there are.

Curam Capital Management:

Curam Capital Management LLP (the "Firm") provides investment management services to a Fund that pursues a global equity approach with a focus on the healthcare sector. If the Firm were to invest directly in UK single equities these would represent only a small part of the Firm's business. Hence, while the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction

Cryder Capital

The Firm provides investment management services to a Fund (“the Fund”) that pursues an investment strategy that involve investing in a wide range of securities and instruments without limitation in various jurisdictions. If the Firm were to invest directly in UK single equities these would represent only a small part of the firm’s business. Hence, while the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction.

Tencendur Capital

When the Firm does invest directly in UK single equities these would represent only a small part of the Firm’s business. Hence, while the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction

2. In addition to Inmarsat, there is also some interesting hedge fund action around the Sky takeover. Again we can see some funds piling in using derivatives to build positions of influence.

So there's Pentwater Capital with 1.92% in derivatives.

UBS O' Connor (their hedge fund business) with 1.17%.

Our old mates Elliott with 3.73%.

Farallon Capital - 1.87%

Canyon Capital - 1.8%

And another old fave Davidson Kempner with 2.16%

That's about 12.5% just on a quick trawl. Worth keeping an eye on.