Here’s how Impactive Capital could apply ESG ideas at student lender SLM
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SLM Corp.
Business: SLMThe company provides private education loans for students and their families, to pay the tuition costs in the United States. You can also open retail deposits accounts such as certificates of deposit and money market deposit accounts. It also provides financial assistance, federal loans and other resources to students and their families.
Stock Market Value$18.25/share
The Activist: Impactive Capital
Percentage of Ownership 5.54%
Average cost: $15.06
Commentary of an activist:Impactive Capital, an activist hedge fund was established in 2018 by Lauren Taylor Wolfe & Christian Alejandro Asmar. Impactive Capital is an active ESG (AESG™() Investor that started with $250 million from CalSTRS, and now owns over $2Billion. Their AESG reputation has been established in three short years.™ investors. Wolfe, Asmar and others realized there was a potential to leverage tools to increase returns, particularly on the environmental and socio-economic side. The Impactive approach focuses on systemic positive change in order to build sustainable, competitive businesses that will last for the long-term. While the firm uses all of the conventional operational, financial and strategic tools used by activists, it will also use ESG changes that are material to the business, drive profitability, shareholder value, and ensure the sustainability of the company.
What’s Happening?
Impactive Capital reports a 5.4% investment in SLM.
Behind the scenes
SLM, a high-quality financial business with a focus on student loans, is unique and exceptional. It is common to have a negative opinion about loans with implicitly or federally guaranteed guarantees. SLM hasn’t made any government-backed loans for students since 2010. The company spun-off the entire operation in 2014 as Navient Corporation. SLM began issuing private student loans in 2014 that they have underwritten and which they take on the risk. They have an excellent loan portfolio, with 86% co-signed loans by parents, an average FICO score around 750, and a loss rate of 1%.
Impactive owns this stock from their fourth quarter 2019 13F filing. It is likely that they have owned it longer. The core business is exceptional and will continue to grow. However, management must keep their focus there and avoid non-core activities. This is what the CEO does with his company. He not only understands how to run it efficiently, but also how capital allocation works and how this drives shareholder value. So, the company generates loans, sells the loan book for 105-109 cents on the dollar, and uses proceeds to generate new loans and buy back shares — rinse, repeat. This will only increase the shareholder return and annual earnings.
This is not the first time Impactive has included an ESG thesis into each investment. Although this situation does not guarantee that Impactive will sit on the board of directors, it is likely to result in Impactive being heavily involved and able to implement AESG.™Their investment thesis is always consistent in their activism: Using ESG to increase value and profitability
SLM by nature is an S-company. SLM provides loans to student to finance higher education. There is more that they can do with these people and Impactive will work with them to develop ESG-related initiatives. Warby Parker is one example of a company that has give-get programmes. These programs allow for charitable donations in connection to the business’s generation. SLM currently donates to charity, but could do more to help the company. They could, for example, give a portion of any loan that they make to the charity of their choice. It has clear benefits for society and the company. Because it resonates with the demographics of the borrower’s customers, this will help strengthen their relationship and give them a market advantage over other companies that do not. It makes loans last longer and makes them more attractive to lenders.
Ken Squire founded 13D Monitor and is its president. The institutional research company focuses on shareholder activism.
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