When Bramson invests, he outlines what he thinks is wrong with a target company in a letter to shareholders but doesn’t berate management in public. In this, he’s the polar opposite of an Ackman or a Carl Icahn. He has never run an hourslong press conference or opined about a target company on television. He only agreed to talk for this story after his outside public relations counsel convinced him that his reluctance to speak to the press was allowing others to cast him in a negative light.
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When Bramson invests, he likes to push for changes from within. He seeks at least one seat on the board, preferably as chairman. Once he has that, he says, he will spend a month or two meeting staff, asking questions and listening. Staying quiet is tactically smart in a turnaround, Bramson says. If you spell out your intentions early, you might stir resistance among the employees whose support you need later. “People usually won’t defy you openly, because it’s not a good career move,” he says. “They stand back and watch you go over the cliff.”
Each target gets Bramson’s full attention, since he puts Sherborne’s money into one company at a time. “If you want to diversify, do it yourself,” he says.
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In the early 2000s, Bramson almost shut down Sherborne. He was unhappy, he says, that private equity had become more about generating asset management fees than finding investment returns. That’s when he hit on a new approach. He realized that he made more money improving businesses that were doing OK than trying to save companies that were in trouble. “The problem with the doggy ones is that they might actually be dogs,” he says. So Bramson morphed from private-equity investor to activist fund manager.
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Bramson has kept his firm small and focused. When picking investments, it’s basically a two-person show: Bramson and Stephen Welker, who joined the firm in 2006. Welker had spent a year, after graduating from Washington and Lee University in Virginia, as an investment-banking analyst at Morgan Stanley. Bramson was looking for someone to mentor. The two are a well-matched pair, often completing each other’s sentences.
About two-thirds of Bramson’s funds come from a publicly traded vehicle listed on London’s Alternative Investment Market. In 2010, after Spirent, Bramson saw a need for permanent capital. Since investors, post-financial crisis, were demanding liquidity, he created a traded entity. Investors can buy or sell at any time, in theory, though the shares trade infrequently. Bramson avoids the risk of sudden redemptions.
The first vehicle, offered in 2010, has been wound down; Bramson raised 207 million pounds ($318 million) with a second vehicle, Sherborne Investors (Guernsey) B, in 2012. In total, Sherborne has about $500 million between the public vehicle and private partnerships, an amount that dictates the size of Bramson’s target companies. Unlike most activists, he rarely uses leverage, saying he learned his lesson in prior decades. With concentrated bets, done one at a time, Bramson has to aim for huge returns on every campaign. He tells investors he seeks to at least double their money on each target.
[H/T Market Folly]