In a recent fireside chat, James Hawkins, Partner & Head of the L1 Capital Catalyst Fund, shared his expertise on the evolving landscape of activism in Australia. Hosted by Jeevanimudeo, the discussion delved into various aspects of Hawkins’ career, the Catalyst Fund’s strategy, and the unique characteristics of activism in the Australian market.

Background and Role at L1 Capital: James Hawkins began his career as a corporate lawyer before transitioning to investment roles at Macquarie and Flagstaff Partners. In mid-2021, he co-launched the L1 Capital Catalyst Fund with the objective of outperforming the ASX 200 through a focused, activist investment approach.

Activism in Australia: Hawkins highlighted that activism in Australia is less advanced compared to regions like the US and Europe. However, he noted that the presence of significant capital in dedicated activist funds and large industry super funds, such as AustralianSuper, is driving the growth of activism in the country.

Types of Activism: The discussion covered the spectrum of activism, from public (capital “A” activism) to private (lowercase “a” activism). Hawkins emphasized that in Australia, much of the activism occurs behind closed doors, leveraging the influence of large shareholders to drive change without public confrontation.

Strategic Focus: Hawkins explained that the Catalyst Fund does not focus on one particular type of activism but adapts its strategy based on the specific needs of each company. This includes financial, operational, strategic, and governance-related activism.

Trends and Future Outlook: Over the past few years, financial activism has been prominent due to inflation and interest rate changes. Looking ahead, Hawkins predicts a shift towards operational activism, with companies streamlining costs post-COVID to maintain margins in a challenging revenue growth environment.

Interaction with Companies: Hawkins described the frequency and nature of interactions with management teams, which typically occur around earnings reports and annual general meetings. He stressed the importance of thorough research and domain expertise in these engagements.

The Role of AI: While AI is becoming a useful tool for analyzing company data and cost structures, Hawkins believes that human judgment remains crucial. He values professionals who can combine AI insights with their own cognitive skills to make informed investment decisions.

Experience and Red Flags: Hawkins concluded by highlighting the importance of experience in identifying red flags and making sound investment decisions. He believes that pattern recognition and learning from past mistakes are invaluable assets in the investment world.

Key Timestamps:

00:09 Introduction
00:38 Background of James Hawkins
01:16 Overview of the Catalyst Fund
01:44 Activism Landscape Comparison
02:57 Institutional vs Individual Activism
03:47 Types of Activism in Australia
04:51 Pressure Tactics in Private Activism
08:06 Interaction Frequency with Companies
10:40 Specialization vs Generalization in Activism
11:49 Investment Decision Criteria
13:08 Role of AI in Activist Investing
14:19 Future Professional Needs in Activism
15:14 The Value of Experience in Investing