WisdomTree’s board has made a public show of support for CEO Jonathan Steinberg after the ETF/ETP sponsor’s largest shareholder and an activist investor urged for his removal, a shake-up of the business and backed out of a cooperation agreement at the last moment.
As reported by ESG Clarity‘s sister title Portfolio Adviser in March, in an open letter to shareholders, ETFS Capital and Lion Point claimed WisdomTree’s “destruction of invested capital, inability to align its cost structure to industry benchmarks and failure to grow assets under management in line with its competitors” are to blame for “poor stockholder returns and stagnating valuation metrics”.
It further accused Steinberg and his management team of “destroying” $400m of the company’s current market value.
In a formal rebuttal, published 5 May, WisdomTree said it had held 13 meetings “over the past few months” where the board had “negotiated in good faith” with the principal of Lion Point, Cristiano Amoruso, in a bid to reach “a mutually agreeable cooperation agreement that would avert a costly, distracting and unnecessary proxy contest”.
But on 4 May, hours before it was to be announced, “ETFS and Lion Point abruptly abandoned the agreement and instead issued an open letter grossly mischaracterising both the nature of the agreement and the negotiations,” Wisdomtree said.
WisdomTree board chair Frank Salerno said: “A cooperation agreement with ETFS and Lion Point would have been a win for all stockholders. We were shocked that, mere hours before its planned announcement, ETFS and Lion Point abruptly and irresponsibly discarded the cooperation agreement and announced their intention to engage in a proxy fight.
“Our negotiations with Lion Point, in which I was personally involved every step of the way, were so constructive and positive that I had, just days before, received a dinner invitation from Mr Amoruso, who himself expressed confidence in WisdomTree’s business direction and strategies.
“Unless Lion Point was always negotiating in bad faith, we can only conclude that Graham Tuckwell, the chairman and CEO of ETFS, deliberately derailed this agreement, placing his own personal agenda above the best interests of other stockholders, including his fellow activist.”
Pursuing a personal agenda
Tuckwell has been a shareholder since 2018, when the company he founded, ETF Securities, sold its European asset management business to WisdomTree.
He had agreed “to be a passive stockholder”, with his voting power capped at 10%.
“Since that time, he has chaffed at those restrictions, demanding numerous times to be added to the board,” WisdomTree said.
The firm said Tuckwell had been driven by “his outsized ego and personal animosity towards [Steinberg]”.
Salerno added: “I can personally attest that Mr Tuckwell’s characterisations of the last-minute conversations he had with me and Mr Steinberg are purposefully inaccurate. His sole focus was to push for our CEO and founder to step down, even though his counterpart at Lion Point had never even met him.
“We were – and are – fully committed to every aspect of the cooperation agreement that had been hammered out through exhaustive negotiations extensively negotiated by his own associates, including the creation of an Operations and Strategy Committee with a remit to evaluate and, if appropriate, recommend changes in the company’s strategy.
“If anyone was operating in bad faith, it was Mr Tuckwell, who appears to have allowed these negotiations to proceed with no real intention of accepting any outcome other than the ouster of our CEO, a result he could never achieve through a vote at the 2022 Annual Meeting. He has once more demonstrated his lack of fitness to serve as a director of this or any other public company.”
Opportunity to triple its stake in WisdomTree
The now-defunct agreement would have enabled Lion Point to increase its stake in WisdomTree up to 9.9%, from its current level of 3.1%.
Per the agreement, the board was to be increased to nine members, with ETFS and Lion Point nominating Lynn Blake, a 31-year veteran of State Street Global Advisors.
In light of her “relevant experience and collaborative spirit”, and despite the agreement collapsing, WisdomTree said, “being true to its word”, it will still welcome Blake to the board.
Additionally, the two companies would have been entitled to designate an additional independent director.
Despite their protestations that they had put forward “three extraordinarily qualified directors”, a second nominee was disqualified on the basis she had “significant conflicts of interest”.
Deborah Fuhr, founder and managing partner of research consultancy firm ETFGI, was subsequently dropped from consideration.
The third candidate seems to have been ETFS’ Tuckwell, who the board said it did not interview, “having already determined on numerous occasions that he does not have the necessary temperament or qualifications”.
Lion Point did not dispute this, WisdomTree added.
“Tuckwell also has significant, unresolvable conflicts of interest that in and of themselves disqualify him as a WisdomTree director”, the board added.
Open to discussions
Defending the firm’s performance, the board said: “[In] WisdomTree’s recent financial results, published on 29 April, the first quarter of 2022 marked the sixth consecutive quarter of organic growth, with strong earnings results and record assets under management in the first quarter despite ongoing market volatility.”
It added: “In the first quarter, no other publicly-traded US traditional asset management company with an enterprise value of greater than $1bn had better relative AUM growth than WisdomTree; in fact, no other company increased AUM during the quarter, and WisdomTree’s organic flow growth rate was the second highest among its peers and over twice the industry mean.”
With regard to moving forward: “The board continues to believe that reaching a consensual resolution and avoiding the cost and distraction of a proxy contest at the 2022 annual meeting is in the best interests of the company and its stockholders.
“As such, the board remains willing and ready to execute the cooperation agreement on the terms that were heavily negotiated and agreed to by the parties over the last several weeks.”
Bonhill’s Campaign for Better Governance, is run by ESG Clarity, International Adviser, Portfolio Adviser and DiversityQ to encourage the investment management community to consider it’s own governance at a time of increased scrutiny on ESG investing.