2014 5:58 am
‘Activism has become a marketing
By James Williams
Bill Ackman, Dan Loeb and Carl Icahn
dominate headlines with their forceful calls for corporate change at
the companies they invest in
This year has arguably been the year of the activist within hedge fund
circles. The likes of
Dan Loeb and
Carl Icahn dominated headlines with
their forceful calls for corporate change at the companies they invest in.
Activist strategies have also proved
to be one of the most popular in the hedge fund firmament among investors
over the past 12 months: 28 new activist funds launched last year, compared
with 12 recorded launches in 2012, according to Preqin, a data provider.
One of the main drivers for this increase is that most leading activist
funds are closed to new capital. However, there is scepticism among
established activist managers about the quality and substance of new funds
coming to market.
The feeling is some are merely engaging in short-term opportunistic activism
to catch the ear of institutional investors. It is a tactic also being used
event-driven and long/short equity
managers, eager to piggyback on the popularity of activism and increase
their capital-raising potential.
In the words of one activist manager: “Activism has become as much a
marketing strategy as it has an investment strategy.”
Unlike an equity fund, an activist fund cannot start with $20m if they
intend to buy a serious stake in a company. There is a clear advantage to
having a longstanding record and longstanding relationships with investors
who have gone through an activist life cycle. This favours established
managers and represents a significant barrier to entry.
“One of the mechanisms to ensure you have the right longevity of capital is
the fund lock-up. We never want to be in a position of having a liquidity
mismatch between a client’s expectations and the requirement of the
investment strategy,” says Dan Mannix, chief executive at London-based RWC
Partners, which runs three activist hedge funds.
Mr Mannix says more traditional event-driven funds are now talking about
being activists. “I am somewhat cynical as to the motivation of doing that.
We believe activism offers the ability to create alpha rather than simply
identify anomalies in the pricing of securities,” he says.
Like other traditional activists, RWC’s approach is to build a long-term
strategy to derive alpha. This is considered to be a sustainable, repeatable
process. Mr Mannix questions whether certain types of catalyst-driven
behaviour can be too.
“In our eyes, short-term investors purporting to be activists are not
sustainable and are unlikely to have repeatable investment processes,” he
According to Maarten Wildschut, co-manager of the $650m RWC European Focus
fund, there is a structural shift where investors are moving into high-alpha
strategies with a compelling investment proposition.
“This trend favours activism and explains why we are seeing an expansion of
activist strategies. The M&A markets are starting to recover in Europe and
this always attracts more opportunistic activist players,” says Mr Wildschut.
In the US, Ashe Capital Partners launched an activist hedge fund last
October, as did Lone Star Value Management, while Legion Partners Asset
Management launched Legion Partners last December. Event-driven managers
such as Sandell Asset Management have engaged in more short-term activism
recently by acquiring shares in
the supermarket chain.
Cevian Capital is Europe’s largest activist manager, with approximately
$12bn in assets under management. Its Cevian Capital II fund closed last
July with $10bn in assets.
Harlan Zimmerman is a senior partner at Cevian. In his view, the emergence
of short-term activism is not a good development but he acknowledges the
reasons why Europe might become fertile ground for this trend.
“I understand why a US event-driven manager, who wants to be an activist,
would look at Europe. Valuations are more attractive, shareholder rules are
better. I think a lot of fly-by-night managers will engage in more
short-term activism,” he says.
activism well requires three
elements to coincide. The stock needs to be cheap. There needs to be a plan
to unlock its value, and there needs to be a path to execute that plan.
“In continental Europe, those paths are quite difficult but there is a lot
of interesting value. In the UK, the opposite is true,” says one leading
event-driven manager who asked not to be identified.
The manager adds activism is “one tool in our arsenal” and that engaging in
dialogue with company management often generates interesting traction. But
they were quick to emphasise that the fund always maintains a high degree of
The Cevian Capital II fund holds a concentrated portfolio of 16 companies,
of which the team sits on eight boards in five different countries. Cevian
is more hands on and long term than most activists and Mr Zimmerman is quick
to stress that the event-driven style of activism sits at the opposite end
of the spectrum to how it operates.
“We saw it in 2007 and 2008. Event-driven managers were hunting in packs.
One manager would disclose that they were looking to force a takeover or
jumbo dividend and others would follow to put pressure on companies.
“However, when the financial crisis hit and fund investors started
redeeming, a lot of these managers got stuck with large, relatively illiquid
stakes in companies. They had liquid capital structures that may have been
appropriate for event-driven funds but not for activist funds,” says Mr
Activism is a strategy that can create returns as opposed to trying to
capture returns in the market.
“We look for situations where we think companies need, and are ready, to
adopt change. These processes take three to five years typically,” says Mr
Philippe Ferreira is head of research for Paris-based Lyxor Asset
Management’s Managed Account Platform. He too sees increased activity among
“When we look at the most-traded names on our platform, across long/short
equity, merger arbitrage etc, we see the same names that are being targeted
by activists,” says Mr Ferreira.
The shareholder-activist space will probably continue to metastasise so long
as the number of investment opportunities remains limited. However, it will
take years for new funds launching today to be regarded as true activists.
“It is at times like this when managers may compromise their beliefs on
liquidity, fees and capacity in order to raise capital. Investors should be
careful about chasing opportunities,” says Mr Mannix.
© The Financial Times Ltd 2014