FYI: The U.S. government's lawsuit against ValueAct Capital targets one activist investor but could call into question routine practices across the $16 trillion mutual fund industry, according to attorneys and industry representatives.
The U.S. Department of Justice last week alleged the hedge fund improperly classified two company investments as passive -- and therefore exempt from disclosure requirements -- while taking an activist role with executives. ValueAct disputes the claim.
Regards,
Ted
http://www.fa-mag.com/news/lawsuit-against-valueact-puts-mutual-funds-on-alert-26301.html?print
Comments
The "passive" here has got nothing to do with a fund's investment style. It has to do with buying shares and just sitting back and enjoying the ride. Which makes me wonder whether even voting for board members is at some level "active". Or something only slightly less extreme - a fund voting on a shareholder initiative to limit executive compensation. The cited article references executive compensation in the context of "activism".
I think this Bloomberg opinion column sheds a lot more light on what's going on:
http://www.bloombergview.com/articles/2016-04-04/shareholder-activism-might-have-antitrust-issues
That has a lot of facts about the ValueAct case, including a link to the Bloomberg news article:
http://www.bloomberg.com/news/articles/2016-04-04/valueact-sued-by-u-s-over-halliburton-baker-hughes-purchases
It also discusses a possible impact on mutual funds. It suggest that the underlying action (saying that a hedge fund owning competing companies in an M&A was being "active") moves a step toward saying that mutual funds (which sometimes own competing funds in concentrated industries) may likewise be illegal. It links to an older column:
http://www.bloombergview.com/articles/2015-07-22/index-funds-may-work-a-little-too-well
That column in turn suggests that maybe funds are safe if they don't vote, which curiously brings me full circle to my speculation at the top of this post.