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Unlike some notorious hedge funds that take an immediate hostile stance when buying into floundering companies, MV Advisors, LLC, likes the gentler approach to correcting market inefficiencies, according to John Mutch, ’97 (EXP-2), founder and managing partner of the San Diego–based hedge fund.
“We’re approaching companies on a friendly basis,” he said.
While Mutch said he doesn’t preclude a hostile takeover if it’s in the shareholders’ best interests, he said his fund’s usual approach is more casual. “We say, ‘We’re a large owner of this company. We’ve done this before. Here’s our track record. Here are some things we think you should think about, and we’d like to engage in a dialogue with you about these issues.’”
Mutch and Jim Zierick, MV managing partner, spoke to students and alumni September 11 at Hyde Park Center at an event hosted by the student-led Private Equity and Venture Capital Group.
Their firm takes an active stance in small- to mid-cap technology firms, working to correct “operational missteps and poor corporate governance” often found in these firm in order to generate a return for investors, Mutch said. MV Advisors currently invests in three such companies and plans to raise $500 million to invest in about a dozen more, Mutch said.
In researching firms before buying them, Zierick pointed out that a company often rises to the top of the list of candidates following a newsworthy event or a value increase. Investors who buy at least a 5 percent share in a company are required to state their intent, registering with the Securities and Exchange Commission in accordance with Section 13-D. It is at this point that some hedge fund managers have gotten nasty, shouting during conference calls or heckling a CEO for having a house in the Hamptons, Mutch said.
Rather than generate a quick jump in the stock price with such an approach, MV Advisors opts for the long-term creation of value, he said. “Our strategy is to identify a series of operational, strategic, or governance improvements; gain the confidence of the operating team and/or the board during the first year; implement those operational changes in year two; then see the value of those changes reflected in stock prices in year three.”
The firm takes a particular interest in corporate governance, especially in ensuring that management compensation packages and incentives are designed with corporate goals in mind. “There are a lot of subtle nuances in compensation and incentive that can make or break the operating performance of a company,” Mutch said.
—Mary Sue Penn