Amber warning – the investor whose interest signals danger

From outside it appears nothing more than another of the anonymously plush townhouses that stand silent sentry in Mayfair, London. But behind the dark front door of this eighteenth-century terrace building is the nerve centre of Crystal Amber, one of Britain’s most feared activist investors.

When the investment fund appears on a firm’s shareholder register, both the company’s management and other investors can be guaranteed that the business in question is in line for a shake-up. The £230m listed fund, led by City veteran Richard Bernstein, has a record of triggering seismic change at the small and mid-cap companies where it builds stakes. Many of the firms it targets are eventually taken over. As a result, whenever Crystal Amber starts buying shares in a business, the City pays attention.

One of my shareholders has said to me, ‘Richard, you’re not really a fund manager, you’re a businessman’

Richard Bernstein

“The correlation between companies we invest in which are subsequently taken over is very high,” muses Bernstein, dressed in a dark suit and shirt and sitting at a conference table in Crystal Amber’s offices, just a few minutes’ walk from Hyde Park.

“One of my shareholders has said to me, ‘Richard, you’re not really a fund manager, you’re a businessman,’ and I look at businesses as the same way as a businessman does. I look at our portfolio now and I can see why a lot of these businesses are attractive.”

The fund has held stakes in the film studios business Pinewood, the chocolatier Thorntons, and the Irish airline Aer Lingus, and all three have been snapped up by suitors within the past two years. Pinewood was bought by a property fund for £323m, Thorntons was swallowed up by its Italian competitor Ferrero in a £112m deal, and Aer Lingus was taken over by British Airways owner International Airlines Group for €1.4bn.

All of these deals generated lucrative returns for Crystal Amber and its heavyweight shareholders, which include the top fund manager Neil Woodford and City giant Aviva Investors. Bernstein, 54, insists with a ready smile that he does not pursue the type of aggressive activist campaigns favoured by US funds, despite his success in overhauling companies and turning them into bid targets.

Traditionally, investor activism has been more common in the US, where hedge funds including Elliott Management and Bill Ackman’s Pershing Square are not averse to publicly criticising companies where they hold stakes.

“We’re not the US brand of activism,” Bernstein says. “Our default position is not to be antagonistic towards management teams. In nine years of our existence we’ve called one EGM and that was a company where most of the board resigned that morning after we called it.”

That is not to say, however, that Bernstein is afraid of going public and castigating company bosses when he believes he is not being listened to.

“Our style is contrarian, patient, supportive,” he says. “But when management teams are deliberately obstructive and acting in their own interest rather than the stakeholders, then that is unacceptable and we act.”

It was during one of those confrontations that did burst out into the open that Crystal Amber first came to widespread prominence in the City. In 2010, two years after Bernstein set up the fund with the backing of Woodford, he was involved in a high-profile spat with Michael (now Lord) Grade as he urged Grade, then chairman of Pinewood, to step down.

“He’s probably a great guy to have at a dinner party, but in our assessment he doesn’t have the desire, the determination, the sweat, or the toil to get the best for shareholders,” Bernstein was quoted as saying at the time.

The dispute thrust him into the spotlight. Bernstein was born in London in 1962, the son of a property investor and a postmistress. He attended Haberdashers’ Aske’s in Elstree, where he was part of a team of pupils that entered a Williams & Glyn’s Bank school stock-picking competition.

“I always enjoyed the stock market and the psychology of what makes a share go up,” he says.

Bernstein went on to study economics at the London School of Economics and then trained as a chartered account at BDO Stoy Hayward: “I wanted to learn about business.” 

He did not enjoy the work, however, and soon left to become finance director of the financial public relations firm City Marketing, where he spent seven years, before setting up Amber Analysis (“Bernstein” means amber in German), a balance sheet screening system that counted Fidelity’s star fund manager Anthony Bolton as a client.

Amber Analysis soon drew the attention of Philip Augar, Schroders’ well-known equity broker, who hired Bernstein to become an analyst in 1997. Bernstein, fascinated by the explosion of technology firms, left Schroders in 2000 to set up his own tech-focused fund, Eurovestech. Bernstein listed the fund the day before lastminute.com floated on the stock market and then rode out the bursting of the dotcom bubble, market turmoil that allowed Eurovestech to pick-up a host of bargains.

The idea for Crystal Amber came after Eurovestech became involved in a dispute with the board of Prelude Trust, an investment company where Bernstein’s outfit held a stake. Woodford, an investor in Eurovestech, was impressed by the campaign Bernstein waged at Prelude Trust and told him he would back him if Bernstein ever moved away from the tech sector to set up an activist fund.

With Woodford as its major investor, the Aim-listed Crystal Amber was launched in 2008. Despite having only five employees (Bernstein, two analysts, a head of marketing and a secretary), it has grown to become one of the UK’s few activists, in an industry dominated by big American funds.

Increasingly, however, US activists are turning their attention to Britain. Last year, Elliott waged two high-profile campaigns in the UK, forcing the brewer AB InBev to raise its giant bid for FTSE 100 rival SABMiller to $103bn, and pressuring South Africa’s Steinhoff to lift its offer for the discount retailer Poundland to £466m.

Bernstein believes the pound’s slump since last June’s vote to leave the European Union will spur more activism, because British companies are now more attractive to foreign buyers and investors will try to encourage deals.

“These are the same companies where, currency-wise, if you’re a US investor they’re 20pc cheaper so there’s been a flurry of activity,” he says. “If you’ve got a pot of money and you come from overseas this is a great place to invest.”

Currently, however, Bernstein is focused on Johnston Press, the troubled newspaper publisher behind the i and a host of local titles, including The Yorkshire Post, where Crystal Amber holds a 20pc stake, making it the company’s biggest shareholder.

Johnston, which is struggling to adapt to the decline of the local newspaper industry, is labouring under £137.7m of net debts, and many in the stock market believe a debt-for-equity swap is looming. Bernstein has publicly questioned whether Ashley Highfield, the publisher’s chief executive, is the right man to lead the business through what the investors believes is an inevitable restructuring.

It appears to put Bernstein on a collision course with the publisher’s board. But he warns: “If we and other shareholders feel this isn’t the best course and Ashley’s had long enough to get it right, then it’s our right to act.” 

Given Bernstein’s record of successful activism, there is no doubt that he will.