Newcomers jump into activist investing, eying returns and capital

Sat Mar 7, 2015 7:21am EST
 
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By Svea Herbst-Bayliss

BOSTON (Reuters) - The largest new field of activist investors in years is shaking up corporate America, seeking to tap into billions of dollars in available capital and inspired by the outsized returns of brand-name agitators like William Ackman and Carl Icahn.

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.   Continued...

 
William Ackman, founder and CEO of hedge fund Pershing Square Capital Management, speaks to the audience about Herbalife company  in New York, July 22, 2014. REUTERS/Eduardo Munoz