Company: SLM Corp.
Business: SLM provides private education loans to students and their families to help them pay for their education in the United States. It offers retail deposit accounts, including certificates of deposit, money-market deposit accounts, and high-yield savings accounts. It also provides financial aid to students and their families and federal loans, and student and family resource assistance.
Stock Market Value: $5.3B ($18.25 per share)
Activist: Impactive Capital
Percentage Ownership: 5.4%
Average cost: $15.06
Activist Commentary. Impactive Capital was founded by Lauren Taylor Wolfe, Christian Alejandro Asmar in 2018. Impactive Capital, an active ESG investor (AESG(TM),) was founded with a $250 million investment by CalSTRS. It now has more than $2 billion. They have established themselves as AESG (TM) investors in just three years. Wolfe and Asmar saw a way to increase returns using tools, especially on the environmental and social sides. Impactive is a systemic approach to positive change that helps build sustainable, competitive businesses over the long term. The firm will employ all of the traditional financial, strategic, and operational tools activists use. Still, it will also implement ESG changes that they believe are important to the business, which will drive profitability for the company and shareholder values.
What’s Happening?
Impactive Capital reported a 5.4% interest in SLM as an investment tool.
Behind the scenes
SLM is a high-quality, niche-focused business in the financial industry that focuses on student loans. The market has a negative view of loans that are implicitly or government-backed. SLM has not offered government-backed student loans in the past ten years. The company spun off the entire operation in 2014 as Navient Corporation. SLM has been issuing student loans since 2014. They underwrite the loans and assume the risk. They have a healthy loan portfolio, with 86% of loans co-signed and co-signed by parents, an average FICO score around 750, and a 1% loss.
Impactive has owned this stock since the fourth quarter 2019 13F filing. They have likely held it longer. This core business is a great one and should grow. Management must focus on this and get rid of all non-core projects. This is what management is doing. They have a CEO who understands how capital allocation works and how it drives shareholder value. The company then generates loans, buys the loan book at 105 to 109 cents per dollar, and uses the proceeds to make new loans or buy back shares. This will increase shareholder return and annual earnings.
This is not the first time Impactive has included an ESG thesis in its investments. Although this situation is not one where Impactive will sit on the board, we anticipate that Impactive will be heavily involved in the company’s management and be able to implement AESG(TM), which is consistent with their investment thesis of using ESG to create value and profitability.
SLM is an “S”-company by its very nature, as it offers loans to students for higher education. There is more that they can do with this group, and we expect Impactive will work with them to develop ESG initiatives. Many companies, like Warby Parker, offer give-get programs that allow charitable donations to be made directly about business generation. SLM currently donates to charity but could do more to help its business. They could, for example, give a percentage from every loan they make to the charity of the borrower’s choice. This not only has obvious benefits for society but also for the company. This is the type of thing that resonates best with the company’s borrower demographic. It will help strengthen the relationship between the borrower and the company and give it an advantage marketing-wise over those who don’t do it. It makes loans more durable as borrowers are less likely to refinance, which increases the loan’s value for the lender.
