In the latest development regarding Richard McGuire‘s Marcato Capital Management and the recent target of its activism, Sothebys (NYSE:BID), the $3.19 billion global art business company has agreed to provide Marcato with access to the Redacted Pages from the case Third Point LLC v. Ruprecht, according to a filing with the SEC. Late last month, Marcato acquired an additional 1.5 million shares of Sothebys (NYSE:BID) to take its holding to 6.57 million shares. The stake represents 9.46% of the company’s outstanding common stock.
Founded in 2010, Marcato invests in small and mid-sized companies. Richard McGuire, the MBA from Harvard University, worked at Bill Ackman’s Pershing Square before he set up his own fund. Currently, Marcato has about $3.83 billion worth of assets under management, while the market value of its public equity portfolio stood at $2.70 billion at the end of March. The finance and consumer discretionary sectors contributed 27% and 33% respectively to the above portfolio value. The top equity holdings included Bank of New York Mellon Corp (NYSE:BK), Lear Corporation (NYSE:LEA), and NCR Corporation (NYSE:NCR), which we’ll discuss later.
Following activist funds like Marcato is important because it is a very specific and focused strategy in which the investor doesn’t have to wait for catalysts to realize gains in the holding. A fund like Marcato can simply create its own catalysts by pushing for them through negotiations with the company’s management and directors. In recent years, the average returns of activists’ hedge funds has been much higher than the returns of an average hedge fund. Furthermore, we believe do-it-yourself investors have an advantage over activist hedge fund investors because they don’t have to pay 2% of their assets and 20% of their gains every year to compensate hedge fund managers. They can also focus on only the best picks of the activist hedge funds, rather than all of them. We have found through extensive research that the top small-cap picks of hedge funds are capable of generating high returns and built a system around this premise. In the 33 months since the Insider Monkey small-cap strategy was launched it has returned over 142% and beaten the S&P 500 ETF (SPY) by more than 84 percentage points (read more details).
Previously, Marcato filed a Notice of Challenge on May 29 whereby the fund challenged the confidential treatment of the legal proceedings of the above mentioned case. However, Marcato agreed to withdraw the Notice following an agreement with Sothebys on June 5, providing it confidential access to the Redacted Pages. Marcato is the second activist that Sothebys is facing, the first one being Third Point’s Dan Loeb, who ended up winning three board seats last year. However, Marcato is still unsatisfied with the company’s performance and in a letter sent to Sothebys in February, it demanded an immediate $500 million share repurchase program and the replacement of the company’s chief financial officer. So far this year, Sothebys (NYSE:BID)’s stock has appreciated by 7.32%. Loeb’s Third Point is the largest stockholder of Sothebys, holding 6.65 million shares valued at $281.03 million.