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Phillip Goldstein, a principal at hedge fund Bulldog Investors, was the keynote interview at The Deal's M&A Outlook 2009 conference Tuesday. The colorful head of Bulldog focuses on small caps, SPACs and has been involved in about 30 proxy fights over the past few years.
With markets in upheaval, activist investing isn't what it once was, according to Goldstein.
"There are deals, but they're fewer and far between," he said. "One advantage we have is that our money is in closed-end funds so we don't have to worry about financing. Activists just have to have a longer time horizon now. "Everyone is getting hit with redemptions, and it's a vicious cycle," Goldstein, said. "Everyone's afraid to leverage even a modest amount, but you can't run a modern economy with no leverage. "We've been lucky so far [with redemptions]. We've been around for 16 years so that's helped. If you've been around only a couple of years, people are quicker to pullout." Although the once red-hot market for special purpose acquisition companies is now frozen solid, Goldstein still sees some value to be found there. "SPACs now are dirt cheap," he commented. "If you want to be able to sleep at night, SPACs are the way to go. They're great investments in a leverage-free market. "For some of the SPACs in this market, there's virtually no chance of them getting a deal done. The way we've used activism is by encouraging the SPAC sponsors to wind them up early if there's no chance of a deal getting done. Any investor would prefer to have the money back today, versus 18 months from now." When speaking about the many failures of major financial companies, Goldstein had harsh words for boards of directors. "Instead of blaming the board of directors, [the SEC] blames the shorts. It's an artificial imposition on the free market," he said. "Why is the board of AIG still there? They're basically destroying the company. These boards have laws that basically protect them no matter how badly they screw up. "Boards can destroy billions of dollars in value and walk away. Bear Stearns, Washington Mutual, it goes on and on. The real moral hazard is on the boards. These guys get all the upside and none of the downside," Goldstein observed. "They want to run things when things are good, but when things are bad they're gone." - George White See all M&A Outlook 2009 posts Categories Deal Video
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