Large Envestnet Shareholder Slams Company’s Performance

In an open letter to Envestnet’s board of directors on Tuesday, one of its largest shareholders slammed the firm for increasing management compensation despite its “blatant underperformance” and “poor governance,” among other issues.

Impactive Capital, together with its affiliates, owns about 4 million shares of Envestnet common stock for a stake of about 7.2% in the firm, Impactive said in the letter.

“During our engagement over the past 18 months, we have been clear that we believe Envestnet is a high-quality business that is not achieving adequate margins, returns, and its full potential value,” according to Impactive.

However, since announcing third-quarter earnings on Nov. 8, Envestnet’s stock has risen. During its earnings call, company executives said the firm intends to enter the custody business for registered investment advisors, a move that would put it in direct competition with the “Big Three” custodians: Charles Schwab, Fidelity and BNY Mellon’s Pershing.

Responding to Impactive’s letter, an Envestnet spokesperson told ThinkAdvisor by email: “The Envestnet Board of Directors and management team are focused on creating value for shareholders by executing our strategy to accelerate growth, and we will continue to take actions to achieve these objectives. As always, we welcome input from our investors with the common goal of driving shareholder value.”

‘Shocking Abandonment’ of Fiduciary Duties

In its letter, Impactive detailed what it said were Envestnet’s well-below market returns over multiple time periods relative to the S&P 500, S&P 400 and the company’s closest peers, the significant margin gap compared with peers, and overspending with apparently no accountability for returns.

“Despite delivering significantly sub-market returns and collectively owning less than 1% of the Company, the Board has nonetheless paid itself $19 million over the past 5 years,” the long-term investor complained in the letter.

“Even as revenues almost doubled over the past 5 years, Economic EBITDA is down 40%, while management compensation is up. For the Board to look at this set of facts and conclude all is well, is, in our view, a shocking abandonment of its fiduciary duties,” Impactive added.

In May, “in the spirit of collaboration, we suggested that an Impactive representative be added” to Envestnet’s board to represent shareholder interests, Impactive said.

However, “rather than accepting the help the Company so desperately needs, management and the Board proceeded to hire a series of ‘defense’ advisors, seemingly to entrench their own interests at the expense of shareholders, concoct an unconvincing performative review process of our candidate, and ultimately reject our request,” Impactive said.

Without the appointment of an Impactive representative to the Envestnet board, it warned, “we see no choice but to consider nominating a slate of directors at the next annual meeting of shareholders to replace long-standing directors who must be held accountable for the Company’s subpar performance.”

(Pictured: Envestnet Logo; Image: Shutterstock)