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Description:

Relational is an activist fund managed by long time activism veteran Ralph Whitworth. Founded in 1996 the fund has $6 Billion in assets under management, most of which is from its seed-capital provider CALPERS and other pension funds. The fund is run like a Hedge Fund, but unlike most Hedge Funds it only charges a 1% management fee and only gets paid the standard 20% incentive fee on returns above what the S&P 500 provides. According to Barron's, the fund has averaged 18.67% a year since its inception.

The fund tends to take highly concentrated bets, using its large purchases of shares in a company to exert influence on management and get its own board members elected. Generally the fund invests in companies with strong businesses and strong cash flows that it deems are trading below their intrinsic value because management has not taken the proper steps.

According to a 2/19/07 cover story in Barron's, the fund takes the following steps when trying to influence change in a company:

"The process, which Whitworth euphemistically calls "engagement," follows a precisely calibrated pattern. First, Relational establishes a "toehold" stake in a target of around $100 million or so. Then Whitworth contacts the company, requesting a meeting with management and directors to present Relational's list of proposals to boost shareholder returns.

If the target company proves receptive, Relational quickly will build its position to 5% to 10% of the stock. If the company rejects Relational's overtures, however, the firm typically will act on its always implied threat of mounting a proxy fight and going public with its proposals. Relational adds to its position in a recalcitrant company only as it is able to ratchet up pressure and cause the target to give ground.

Relational often seeks two board seats. "That way, David or I can always have a second to any of our proposals, thus forcing a board vote and making the issue a matter of record," Whitworth says. Yet they would prefer to effect change without going public or forcing their way onto the board. Confrontation, as Whitworth sees it, only leads to additional time and expense."

The Fund also pushes for large buybacks and dividends to shareholders.

Whitworth is a graduate of the University of Nevada at Reno and Georgetown Law School. After law school he worked for T. Boone Pickens' Mesa Petroleum. In1986 he became the head of United Shareholders Association, a lobbying group started by Pickens to promote corporate democracy.

Note: Sold entire stake of CEN in April of 2007


As of 12/31/06

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