Jesse Cohn is one of Wall Street's most influential investors. As managing partner at Elliott Investment Management, he's helped shape the strategies of major companies — from Twitter to Salesforce to AT&T. Known for pushing boards to unlock value and sharpen execution, Cohn represents a new era of active ownership where investors don't just take positions, they drive transformation.
Excellent.
We have a couple more. Thank you so much for sticking it out with us, and Jesse, for joining us and coming up in Florida to do this.
So Jesse, Elliott's reputation — and it does a variety of different things — but no matter what it does, whether it's in the public markets or the private markets, you guys are an active investor, not just an activist, but an active investor. But public equities are becoming more and more passive right now. Are you a dinosaur?
Well, I hope not. But your point is the right point. You know, 60% of the money in US equity funds is now in index funds. And this is kind of a really big deal, and I'm glad you started with it because it's kind of where our focus is. The US markets were built — the whole premise of our markets were built on the backs of active investors. People actually choosing which companies deserve capital. Active investors doing work and saying to a management team, 'We like your innovation. Here's more money. We like the direction you're taking this company. Here's a higher valuation.' And on the other side, saying to a management team, 'You're shrinking. Here's less capital. Here's less money for your business.' And that sorting mechanism, that meritocracy, is what built our markets. It's what built the strength of the US economy. You know, everything we talk about — Nvidia's printing suit — these are public companies. And so you need active investors, but we now have 60% of the funds in passive money. And that's a big deal for...
Practically speaking, what do you think is the market implications of that?
Well, there's less dynamism. There's less choosing. Passive investors are there to participate in the market. They're there to, you know, ride the index. Active investors are there to choose which companies are prospering and give them more money and so on. And you're going to have a less dynamic market. You're going to have a less accountable market. It kind of brings you back to, you know, pre-World War II when management teams were insulated and the board was a rubber stamp and they didn't care about how they allocated capital. And the active investor base changed that, and now we're kind of at risk of going right back to a passive base that owns everything, doesn't choose, doesn't select.
Is there something — and I don't know if it becomes a specific situation — is there something you think would flip that and push it back in the opposite direction, back towards where you want it to be?
Well, you know, the US government is looking at this now, which we welcome. And, you know, I think everybody realizes it's a big issue and people are talking about the fact that there needs to be a change because we are at risk of, you know, ending up with a less dynamic, a less healthy market, a less healthy economy. And so there's an executive order that's been put forth saying we should study this. This is important.
The guy on the executive order side. There's also this push against proxy firms right now, which I guess is partially what we're talking about here. Those are — they're not proxy firms — proxy for — I assume that would be something you're against. Am I wrong about that? The kind of tamping down on their power.
Well, what we're for is actual active investors making choices for the company. And proxy firms are there to render a verdict and help people understand that. But, you know...
But they're also there to, in part, not be a rubber stamp for management, which is...
Correct, which is important. And, you know, I think when we look at this and we say, how do we create a healthy market? We create a healthy market with a meritocracy and people voting. You know, I think it's worth raising that, you know, the big three right now — BlackRock, State Street, and Vanguard — own like 30% of the register in these companies. And they're not voting and they're not choosing. And the actual founder of Vanguard, Jack Bogle, right before he died, published an op-ed warning against the fact that these three shareholders, these three index holders, would control US companies and that that would be a major issue and that that was not in our national interest.
So if you were in the White House and you were able to issue an executive order — not one to study something, but to actually do something — what would be the thing you'd want to do?
Well, I'd want to — I would have to take a look at this and come up with the right answer. There's been a lot of proposals floated. You know, when we have a view, we'll render our view on where we're at. But the reality is that this is an issue that absolutely needs to be addressed. We can't have...
I guess that's what I'm asking. Is it something that can be actually addressed by regulators, or is this just the way of the world? Obviously, people have a choice, right? I can either be a passive investor, an activist investor — the government can't force me to be one or the other — or I can be not an investor at all. What, from a regulation standpoint, could actually be done that would change this, as opposed to just people suddenly deciding, you know what, this is good or bad business?
We have to look at the voting. We can't have a situation where passive investors who are not choosing companies, who are not holding management accountable, who are not leading to market dynamism, control the votes at our largest US companies. We just cannot have that. It's not healthy for us. It's not good for our economy. It's not good for our savers. It's not good for anybody with money in the market. We got a lot of VCs here. You have a situation — every VC company likely will end up somehow affected by public companies. Our Mag 7, these are all public companies. We need a healthy market, and that's at risk if we have no voting and no accountability.
Obviously, Elliott sometimes buys private companies or brings companies private. Do you feel then are the private markets right now healthier than the public markets?
Well, the private markets have their own, you know, sort of...
They do. That's why I'm asking. But they have active management, obviously.
They do have active management. And the private markets do not have a situation where management and ownership are completely disconnected, which is the risk here. We have a management that feels like it can do whatever it wants because it knows that the shareholder base is not actually voting. That brings us to like Japan pre-reform, where you had interlocking companies and bank-controlled companies, and their economy didn't work out very well there. We want the US to be healthy. We need this issue addressed, and I'm glad that people are looking at it.
You brought up Japan. So I'm thinking a little bit about the US Steel situation. Not that you guys were involved in that, but one of the things that ended up with was — this is kind of another politics question — was the US government becoming a shareholder in that case, in US Steel or in Nippon Steel. It's obviously invested in Intel. It's taken stakes in a variety of different mining companies. Is it a good — you're a public equities investor. Is it a good idea that the US government is also becoming a public equities investor?
Well, I'm not going to touch that, but I will say that it's a good idea that we are engaging with companies and trying to make them better as an active holder.
But if you were in a company, if you had X% of whatever company, and the White House or the Commerce Department suddenly takes a two, five, whatever percent stake, are you happy about that or are you not?
Again, I'm happy to have an active role in helping companies do better and in helping them to be accountable to their shareholders, which is at the heart of what's made companies better. Meritocracy — we need that. We need votes. We need voices. We need choosing.
Why do so many CEOs, generally speaking, at boards dislike activist investors as a class? They dislike Elliott specifically. In a lot of cases, you are one of the ones they are most scared to find has shares in their company. Why?
I haven't heard this. No. No. I think at the heart of it is you want shareholders, including us — you know, activists are just the most active, but any active holder is pushing a company to perform. People don't like to be pushed to perform, but the reality is that's what makes our market. That's what makes companies accountable. When they are doing something that is not value-maximizing and someone is saying to them as a check and balance, 'Hey, that's not working,' and they have to change course. They may not like it, but the reality is it makes them better and stronger. And that's just true generally of all active holders.
Are there certain red flags for a public company that particularly get Elliott's interest? And I don't mean the things you ultimately invest in, but the thing that puts a company on your radar in the first place.
It generally comes down to capital allocation. Are you making the right decisions with your money? Are you buying the right things? Are you spending it properly on R&D? Are you hiring the right people? Is your expense...
But when you say that, thousands of companies are making acquisitions, are making hires every single day. You can't track every hire at every company. I mean, SaaS ones, I guess you could. What within that is the thing that puts an alarm bell on some analyst's computer, saying this is one we need to dig deeper into?
It's if it's poor — I mean, the reality is that every situation is super specific, but are they doing the right things with their money? You know, if there's a growth opportunity, are they spending for that growth? If there's not, and they're spending somewhere where there's not a return, that's the wrong decision.
How do you kind of indicate that a company is undervalued versus fundamentally flawed?
Well, it's not pure valuation metrics. I mean, that's...
No, but there's certain companies that changing the management, you know, maybe divesting something, that's not going to fix it. That there's a fundamental problem. This is not a savable company. This is a dinosaur again. This is a company that's going away kind of no matter what we do because of what they do.
