Investors such as Bill Ackman and David Einhorn, who buy stakes in companies and push management for change, are good for the market, according to Mario Gabelli, founder of Gamco Investors Inc.
Activist money managers are filling an information void created by rules limiting disclosures by publicly traded companies, said Gabelli, who oversees about $36 billion from Rye, New York. At the same time, regulation of short sellers and speculators who specialize in debt could improve, he said.
“The free market is at its best when everybody works in a fishbowl and tells you their point of view,” Gabelli said today on “Bloomberg Surveillance” with Tom Keene. “The hedge funds and portfolio managers have a right to do this,” he said. While Wall Street brokerages used to fill the role, “We’ve muted the analysts and their presence in the system,” he said.
The prominence of activist investors has risen this year as Greenlight Capital Inc. founder Einhorn urged Apple Inc. to return cash to shareholders and Ackman, of Pershing Square Capital Management LP, and Carl Icahn took opposing positions on Herbalife Ltd.
Einhorn’s prescription for Apple, the world’s most valuable company, is “brilliant,” Gabelli said. The hedge-fund manager sued the iPhone maker as part of a push to get the company to create a new class of dividend-paying preferred stock. A judge sided with Einhorn in a ruling last week.
Gabelli, a value investor who buys stocks trading at below-average prices relative to earnings, has clashed with executives of companies he invests in. He prodded Cablevision Systems Corp. to bolster its share price in 2008 and his “Magna Carta of Shareholder Rights” published in 1988 took issue with managements he said failed to keep stockholders informed.
While praising activists, he noted “gaps in the regulatory framework of transparency” where some money managers are not held to the same level of disclosure as others.
“Short sellers don’t have to file 13-Fs, they don’t tell you their positions,” he said, referring to the Securities and Exchange Commission form detailing fund company holdings. “Companies that buy debt, that then try to get control of a company, never have to file.”
Gabelli also said mergers and acquisitions among companies will continue over the next several months.
“Corporate buyers buying because they want to grow, and that’s the dynamic that’s going to take place over the next 12 months -- lots of deals, lots of spinoffs, lots of financial engineerings,” he said.
He said he’s bullish on companies such as MWI Veterinary Supply Inc. and Patterson Companies Inc. that make supplies for animal care. There will likely be more mergers and acquisitions in the industry as people increase spending on their pets, Gabelli said.