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 The surge could force more companies into costly battles with
shareholders over leadership, spin-offs, and buybacks, though some
of the new entrants risk being brushed off if corporate boards find
they lack good ideas or firepower.
"Everyone wants to be an activist these days. Everyone wants that
capital," said Damien Park, head of consulting group Hedge Fund
Solutions.
In the last five months, some 45 hedge funds launched their first
ever activist campaigns, according to data from research firm
Activist Insight, up from 26 new entrants the same period the
previous year, and 15 the year before. The October through March
period is traditionally the most active season, coming in the runup
to companies' annual meetings, usually held in the spring and early
summer when boards are elected.
Among the newcomers are firms like H Partners, Chieftain Capital,
Isaac Capital, Vertex Capital, Jet Capital and Heng Ren Investments,
some of which are taking on big names in the corporate sphere. H
Partners and Chieftain, for example, are pressuring bedding-maker
Tempur Sealy to change its leadership, while Jet Capital is
complaining about "poor capital allocation" at SunCoke Energy.
They join more established hedge funds that are also promoting
activist campaigns, including Kyle Bass' Hayman Capital and David
Tepper's Appaloosa Management, which are pushing for former Goldman
Sachs banker Harry Wilson, who had been a part of the Obama
administration's auto task force, to join General Motors' board.
Activism has picked up dramatically since the 2008 financial crisis,
but it has been popular before including in the 1970s to late 1980s
when financiers including Carl Icahn and Nelson Peltz were called
corporate raiders for their strong-arm tactics used to replace top
management and improve value for shareholders.
The surge comes as activist funds outpace traditional
long-short-equity rivals' returns, and draw inflows: Activist funds
gained an average 6.3 percent in 2014 -- with Ackman returning 40
percent -- crushing the average fund's 3.5 percent increase, Hedge
Fund Research data show. To be sure, an investor who simply tracked
the Standard & Poor's 500 index in 2014 would have gained 12
percent.
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Last year, 71 dedicated activist funds that oversee $119.2 billion
in assets took in a record $14.2 billion in new money, nearly three
times the $5.3 billion they pulled in 2013, HFR said. Meanwhile,
about $135 billion in money is sitting on the sidelines earmarked
for activist strategies, according to advisory firm Kingsdale
Shareholder Services.
Still, with less expertise, fewer connections and less cash, some of
the newcomers risk falling flat.
"This is like playing sports where you can't simply copy your
rival's playbook and hope to replicate success if your team can't
execute well," said Kingsdale CEO Wesley Hall.
The world's 14 top activists have on average $16 billion to deploy
in full throttle fights, while the newcomers often have less than
$100 million in assets, Activist Insight said.
"There will inevitably be opportunists who are trying to ride a
momentum moment," said Richard McGuire who runs $3 billion Marcato
Capital Management. "But maybe some of them have a good nose for
good ideas and I wouldn't be as quick to dismiss them."
(Reporting by Svea Herbst-Bayliss; Editing by Richard Valdmanis and
John Pickering)
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