August 1, 2021

Fall in activist hedge fund activity in the first quarter

Posted on Apr 9, 2019 at 9:22 amUpdated Apr 9, 2019, 5:29 PM

The activist funds, which invite themselves to the capital of companies to encourage them to change (activity, governance, etc.) have slowed down. 57 activist campaigns, two-thirds of which in the United States, were launched by hedge funds in the first quarter, against 71 a year earlier, according to the analysis of the Lazard bank.

The Starboard Value fund was the most active (7 investments) followed by Elliott (4). Invested capital fell by more than half to $ 11.3 billion, from $ 25.3 billion in the first quarter of 2018, which had set a record. 53 companies were targeted by the funds, including 13 in industry, 10 in energy and infrastructure and 5 in technology. In terms of amount, these three sectors attracted 27%, 20% and 15% of hedge fund investments.

Fusions

39% of activists’ campaigns called for the sale of the targeted company. Carl Icahn’s fund, which gained nearly 8% for the year in 2018, this year took a stake in Caesars Entertainment, in the hotel and casino sector. It strongly encourages it to consider a merger to raise its share price. When they manage to marry their target, hedge funds realize their greatest capital gains. The Ancora fund has moved up a gear by launching itself, Monday, a takeover offer on the restaurant chain J. Alexander’s, offering a premium of 24% compared to the last quoted price.

Disposals

Starboard and Wellington opposed the takeover of Celgene by Bristol-Myers, considering the synergies too low. For the second management company, this intrusion into activism is a first. In 2018, around forty investors tried this method to increase the performance of their investments.

In the distribution sector, Starboard pressured Dollar Tree to sell Family Dollar, which it said was too expensive. In 2014, it was Carl Icahn and Nelson Peltz (Trian Fund Managment) who encouraged Family Dollar to be bought out. Dollar Tree decided in March to close nearly 400 Family dollar stores, much to the activist’s satisfaction.

Elliott asked the Ebay and EDP groups to divest some of their assets deemed non-strategic, a requirement common in 38% of Q1 campaigns. The hedge funds managed to impose 39 new directors in 28 listed groups. 10% of groups increased their dividends or bought back shares in reaction to the onslaught of activists in 2018 according to the firm Sullivan & Cromwell. This is two times less than in 2015.

Performance increase

Activist funds gained an average of 8.3% during the first three months of the year according to Hedge Fund Research. The Children’s Investment Fund (TCI), Chris Hohn’s activist hedge fund, gained 18% in the first quarter according to the Financial Times. Bill Ackman’s fund jumped 37.2% and that of Dan Loeb (Third Point) nearly 9%. The latter would have returned to the assault on Sony, according to Reuters. He had acquired 7% of the group six years ago but had failed to be heard on business splits. He then sold his stake in 2014 with a capital gain of nearly 20%. Today he would like Sony to sell its movie studios.