Active Value under scrutiny

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The Independent Online

Julian Treger and Bryan Myerson are being forced to defend the performance of their activist fund Active Value after losing £30m on their investment in Cordiant Communications.

The duo are expected to give up their battle to control Cordiant on Wednesday and allow Sir Martin Sorrell's WPP Group to take control of the troubled advertising firm.

The high-profile battle over Cordiant has led to heavy scrutiny of the recent investment strategy of Active Value. It built up a 12 per cent stake in Cordiant during 2002 when the company's value fell from £400m to around £100m.

The investors proposed management change and a re-financing, but the plans were later scrapped. But after WPP's recent bid that valued the shares at just over 2p, Active Value carried on buying at prices higher than the offer price, and now owns 26.2 per cent. The fund is showing a £30m loss on its investment in Cordiant.

Active Value is well known for its belligerent style when agitating for change at underperforming companies. But some recent investments appear to have flopped.

Active Value built up a 23 per cent stake in recruitment firm Corporate Services Group between July 1999 and March 2001, when the share price varied from 30p to 100p. The shares are now at 5.5p, after Active Value increased its stake to 46 per cent during a 5p per share rights issue.

At property company Marylebone Warwick Balfour, it invested £20m through shares at 80p, now at 59p. Investments in BNB Resources at more than 60p were believed to have been sold at a third of that price, losing Active Value up to £9m.

However, the fund has hit back, pointing to the record of the investments it has sold out of. Sources close to Mr Myerson and Mr Treger point out that until the investments are realised, it is unfair to look at their performance.

"Brian Myerson and Julian Treger have a 14-year track record in advising investor groups on activist special situation investments," they said in a statement. They claimed a 27 per cent Internal Rate of Return on 27 investments made since 1989, against a benchmark of 12 per cent. This includes recent realisations that showed a gross IRR of 30 per cent, they said.

Active Value manages $700m (£440m) of funds on behalf of large institutional investors such as Calpers, the Californian state pension fund, and the State of Ohio pension fund. It said it is an absolute return fund that holds between eight and 10 investments at any one time.

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