Cevian aims to double their money over a time horizon of three to five years, while limiting downside to 20% on a realised basis; mark to market drawdowns on some positions might be larger. “We have no problem with market volatility but pay attention to loss of principal or permanent loss of capital,” says Helfer.

On top of an attractive valuation and company, Cevian needs to see scope for significant improvement via its distinctive style of activism. Cevian is generally the largest or second largest shareholder in its companies, typically owning 5-20% stakes in companies with a wide range of ownership structures, including those with dual share classes that do not offer ‘one share, one vote’. Cevian has invested alongside the government in the case of Swedish telco Telia Sonera: a highly successful investment that generated absolute profits over a holding period including the 2008 crisis. Companies that have significant ownership stakes from foundations, such as Germany’s Thyssenkrupp and Switzerland’s Panalpina, are not excluded “so long as we understand the ambitions of the foundation and have a common basis and orientation for dialogue,” says Helfer. Cevian has also sometimes acquired stakes from family companies. Cevian has not invested directly into holding companies, but sometimes owns the same stocks e.g. Ericsson and ABB, where Sweden’s Wallenberg vehicle, Investor AB, is a large shareholder.

Cevian is currently mainly invested in manufacturing, industrials and financials. Some sectors are not suited to their value driven approach. For instance, very disruptive industries such as biotech and those that are highly sensitive to commodity prices. Financials would need to have a stable franchise, as Danske Bank did, rather than being more volatile investment banks.

Cevian’s concentrated portfolio of ten to twelve companies and long holding periods means that it typically makes only two or three new investments each year. Between two and five Cevian professionals work on each investment, which requires months of fundamental research and due diligence, including field trips and site visits. They can be helped by senior partners, such as UK Chairman and partner, Lord Myners. Not all investments reach full size; sometimes external factors change the investment thesis, or the share price appreciates too fast, before Cevian has a chance to build a full position, which can take weeks or months.

Cevian’s latest disclosed investment, announced on 1 March 2018, was a 6.9% stake of outstanding shares in the global #1 automotive safety group, Autoliv, based in Sweden. Cevian views the business as a beneficiary of active safety and autonomous driving trends and supports the spin-off of electronics unit, Veoneer.

Defining Cevian’s style of activism
Cevian’s intention when investing is always to be a large, engaged and active owner; Cevian enters into a constructive dialogue with the company management and board, and its own professionals typically join the boards of portfolio companies. Currently, Cevian partners sit on nine boards in six countries. We are not aware of any other activist anywhere ever having such a geographic spread of boards, and certainly none in Europe has ever held as many seats.

Cevian has never had to pursue a proxy fight to win a board seat. Rather, “we rely on our ability to use past work as valuable references, our local networks, the support we receive from other shareholders, and our intimate understanding of corporate governance practices and laws in each jurisdiction we operate in,” says Helfer. In many jurisdictions that Cevian operates in, minority shareholders have more formal governance rights than the US. In the Nordics for example, the largest four shareholders sit on the nominations committee that reviews and suggests board members to the AGM. This guarantees a seat on the table and enables a constructive and behind-the-scenes discussion. “We think that our style works more effectively than proxy battles in Europe,” says Helfer.

“Constructive activism”
“Cevian’s approach isn’t hostile, but that doesn’t mean it is always friendly,” says senior partner, Harlan Zimmerman. “The main thing is that we are working to make our companies more competitive and better in the long term. Thus, they become more valuable. This is the essence of constructive activism”. Cevian is proactive and assertive in communicating its views on how to make this happen. “The company will however hear our views directly, not read about them first in the press,” says Zimmerman.

Cevian does not write public letters or publish white papers in the way that many activists do, and seldom goes public. A rare exception was a recent, on the record, interview about Thyssenkrupp with German newspaper, Handelsblatt. Cevian is Thyssenkrupp’s second largest shareholder with an 18% stake. Lars Forberg criticised the operational performance and resulting share returns (negative total shareholder returns over the previous five years) and argued that a less complex structure would facilitate a step-change in the operating performance of the company, and allow the firm’s value to double. Cevian reportedly abstained from the vote discharging management at the last AGM but did not vote against management.

Empowering under-resourced boards
Cevian nearly always brings its know-how to bear behind the scenes. “We are responsible shareholders and exercise our governance rights. We can offer much experience, such as special situations and demergers, and contribute a lot. We have a strong understanding of best practices in the boardroom, what you can demand, and challenges the company faces. We are strong supporters of executives,” sums up Helfer.

Cevian is prepared to express some constructive, empathetic and generic criticisms of company directors. “Many boards are stale, sleepy and risk averse. We can often help to catalyse or accelerate change, by making sure the right things are discussed. We recognise that it is difficult to be a good board member. Boards meet 6-8 times a year but have many responsibilities, including, setting strategy, supervising management, and managing risks. Board members often do not have enough time to get familiar with all the details, as they may have many board mandates and other executive positions. It is sometimes surprising how little boards know about peers’ operational performance. Once we get onto the board, we have done our homework and are in a position to ask the right questions. For instance, if a company claims to have cut costs, but this is not apparent in the data, we can identify and challenge any misleading assertions,” explains Helfer. “We want to support members with a constructive, fact-based and rational dialogue. Our skin in the game and long holding periods make us credibly aligned. Our modus operandi is to understand the business and its dynamics better, set the right ambition level, and monitor the execution, but not to become the CEO or do a takeover,” she continues.

“Often, we invest in companies that are underperforming peers, show an incoherent strategy, have disappointed in recent results, and are therefore out of favour with capital markets. By the time we exit, management teams have clearer strategies, have developed a track record of execution, and are now respected by capital markets,” says Helfer. Indeed, Volvo and Danske demonstrate how companies that were ranked at the bottom of the peer group for performance, have climbed to the top. Cevian’s Lars Forberg sat on the board of Danske between 2013 and 2016.

Tailoring tactics
The precise modus operandi is tailored to individual companies and countries. For instance, the specific committee Cevian might sit on, depends on local corporate governance norms and company-specific rules. Helfer explains: “it can be the audit committee, but it varies by jurisdiction. In some countries, non-independent board members are not allowed to go on some committees. At Valmet, I sat on the audit committee, and in 2012 focused on project and risk management processes to address project issues, to ensure that the executive team were aware of issues and estimates. Margin targets were another key focus, where the CEO was excellent, driving the change to create a higher ambition level, and not being satisfied with an average margin. This led to a lot of small changes being implemented together”.

Cevian invests significant time in board engagements and Helfer reckons that the firm’s edge comes partly from the level of resources devoted to each investment. Helfer estimates that she dedicated “c. 40% of her time to Valmet, including one board meeting a month, interactions about specific issues with management and board, and visits to company sites around the world”.

Being on boards naturally means Cevian is often restricted from trading during ‘closed periods’. While this does limit investment flexibility at certain times of year, the overriding advantages are “having a seat at the table, transparency on operational performance, and influence over big strategic decisions,” sums up Helfer.

Other stakeholders
“We want to make companies better and more valuable for all shareholders and stakeholders,” says Helfer. Cevian does not need to enlist the support of other shareholders in a formal manner, as they do not bring about change through shareholder votes, and for this reason it is difficult to objectively measure what percentage of other shareholders support Cevian’s initiatives. However, Cevian likes to forge a strong dialogue with other stakeholders, including shareholders, and anecdotally there are examples of other shareholders publicly supporting Cevian (including on Thyssenkrupp recently).

As credible, constructive activists Cevian has built up a strong rapport with institutional shareholders over many years. “Having long-term institutional shareholders support our initiatives makes us much more impactful,” says Zimmerman. Cevian has partly benefited from a general positive shift in the perception of activists, due to societal complaints about ‘fat cats’ and executive pay. Those activists who do pursue their objectives through shareholder votes will often find pension funds supporting resolutions on executive pay.

Making things happen
Having studied urban planning in her native Austria, followed by Real Estate Development at MIT, and a spell in management consulting at McKinsey, activist investing might not have seemed the most obvious next step for Helfer. Then again, Cevian’s culture is rather different from most activists. Co-founder, and Stockholm office head, Christer Gardell, also worked for McKinsey, as a partner, in Sweden and Australia. Gardell as well worked in private equity, at Nordic Capital, with the other Cevian co-founder, Lars Forberg, who heads up the Zurich office. The London office senior partner, Harlan Zimmerman, also worked in private equity (in addition to hedge funds) before joining the firm.

Helfer is very clear on why she made a horizontal career move from consulting to investing. “The lure was increased accountability, to put our money where our mouth is. The hurdle to recommend something is higher if you need to back it with a billion-dollar investment. There is also more freedom, so that we are not so much dependent on the client. Investors have more possibilities and rights to influence a company than does a management consultant paid by the client – who sometimes wants an outside stamp of approval for decisions already made”.

Helfer studied for the CFA charter and learnt a lot from colleagues in terms of Cevian’s particular investment style and engagement approach. “It was important to learn the language and style of communication to develop a constructive dialogue with management,” she says. The urban planning was useful in having developed a respect for different perspectives, such as government intervention versus private markets, and diversity of thought.

Helfer was hired as vice president, which at Cevian ranks above analyst and associate, with a clear perspective to become a partner of the firm. The firm has a relatively flat structure with only four levels of hierarchy. Within four years Helfer made partner. Over her decade at Cevian, the company has grown assets from $2.5 billion to $15 billion, and the team has swelled.

We touch on two case studies where Helfer has been strongly involved. The European sovereign crisis in 2011 threw up a number of opportunities for Cevian. One was UK-listed Cookson, which at that time was out of favour with institutional investors, after repeated rights issues. The stock was widely perceived as a consensus early cycle short with exposure to steel and electronics end markets. Cevian was however looking through that superficial assessment and saw a collection of strong businesses with sound leverage and scope for further value enhancement through structural and operational changes. Some of the changes Cevian advances can take years to be reflected in returns, but Cookson’s value-creating demerger occurred in December 2012, less than a year after Cevian had acquired a 20% stake and took a board seat in spring 2012. The demerger created two independent companies, and Cevian had board representatives and a 20% stake in each of them. The chemicals unit, Alent, performed strongly as an independent company, and was then taken over at a significant premium in 2015. Cevian remains a shareholder of Vesuvius – which reported strong results in March 2018. Cookson’s proforma total shareholder return over Cevian’s holding period, taking account of the demerger and takeover, was around 220% versus 80% for the MSCI Industrials, as shown in Fig.1.

Helfer reflects that part of the return did come from multiple expansion associated with eliminating a ‘sum of the parts’ discount, but also from improvements in operating margins (as shown in Fig.2) as Vesuvius has implemented operational improvements in its American and European manufacturing footprint. Helfer is confident that Vesuvius will improve further.

Valmet/Metso was similar to Cookson in being a very contrarian investment, involving both a spin off and operational improvements. Valmet, which designs, builds, and services pulp and paper machines, was perceived to be a dying business with margins of only 5%, while the other part of Metso, which makes mining machines, had much higher margins, in the mid-teens. Valmet, the ‘ugly duckling’, was starved of capital and attention within the bigger group. The demerger enabled Valmet’s newly formed board, including Friederike Helfer, and management to focus on its particular businesses, which turned out to be a ‘Cinderella’ story. Profits quadrupled within three years and the total shareholder return was 180%, versus 30% for the OMX, as shown in Fig.3.

“The biggest contribution came from operating performance and the standalone margin is now higher than ever, despite the extra corporate HQ costs. Though there is no perfect peer, margins are ahead of close peers. The firm has returned to growth and is ready to do a bolt-on acquisition and consolidate the industry,” says Helfer, who has now left the board of Valmet after Cevian sold its stake last year.

Alignment with long term investors
Cevian has been soft closed since 2012/2013, just replacing redemptions, and only fund investors are invited to participate in co-investments. Cevian aims to be fully invested and could return capital to investors if insufficient opportunities were identified, but has never done so.

Cevian’s investor base is 75% institutional – including pension funds, sovereign wealth funds, endowments and foundations – with 20% family offices and only 5% funds of funds. Publicly disclosed investors include US activist Carl Icahn and a number of large Canadian and US state pension funds. All partners of Cevian are also invested in the fund.

Investors are all in for the long haul. Some 90% of the capital base is in rolling three and five-year lock-ups, with the rest in one or two-year lock-ups. The liquidity profile is well aligned with Cevian’s own long-term style of investing, which has an average holding period of 3-5 years.

Helfer is looking forward to the next corporate rejuvenation challenge – and the equity market rout seen in early 2018 could increase the number of potential candidates.