July 23, 2015 6:12 pm
Samsung reveals limits to activist
After a decade of frenetic growth, the low-hanging fruit may have already
The founders of Elliott Management Corporation hate to lose. In South Korea,
however, they have met their match — for now. A few months ago, the New York
group took at shot at the mighty
Samsung, seeking to block an
excessively cosy merger of two of its corporate affiliates.
However, last Friday, after a noisy campaign,
Elliott narrowly lost a shareholder vote.
The contentious merger will thus proceed — even though many small South
Korean shareholders backed Elliott’s campaign.
What should investors conclude? One obvious lesson is that South Korea
remains a place where
vested interests still dominate.
However, there is a second, even more important point: these days activist
investors such as Elliott are testing new frontiers, even in hitherto
hostile places such as South Korea. And notwithstanding Samsung’s victory
there is every chance this trend will now accelerate — and in some unlikely
To understand this, look at the numbers behind the activist game. A decade
ago, dedicated activist funds had a mere $12bn under management, according
But today that pot has expanded in size to $120bn — or double that if you
also include multi-strategy funds which are pursuing activist strategies.
“Today, more than 10 activist funds (activist or multi-strategy funds)
manage over $10bn each,” JPMorgan says, pointing out this is “about as much
as the entire asset class 10 years ago.”
Campaigns have — unsurprisingly — surged too. This year alone, there have
been 190 attacks in America, up from 124 in 2010, according to Factset. More
striking, though, is the success rate: five years ago, activists were only
winning half of their battles. Last year, they won two-thirds.
This reflects another trend: the sector is shedding some of its cowboy
image. In public, figures such as Larry Fink of BlackRock are often highly
critical of activists, deploring the short-term focus that their campaigns
But, in private, large asset managers such as Pimco and Vanguard — and even
BlackRock — are often quietly supporting activist campaigns.
And that has not just raised the success rate but also attracted more cash
from mainstream investors, particularly since many of those are desperate to
find a lucrative way to diversify their investment portfolios in a world of
hyper-elevated share and bond prices. “Activist investors may now control
close to 8 per cent of total hedge fund capital,” as Bain recently observed
in a report.
As the sector keeps swelling, however, the question it faces (like any
fast-growing area of finance) is whether it could become a victim of its own
success. Its rapid rise is already starting to generate some political heat.
Hillary Clinton, the Democratic contender in the US presidential race, for
example, is expected to call for changes in the industry’s favourable tax
treatment in forthcoming campaign speeches.
The growth is also raising questions about overcrowded trades. In recent
years, the sector has produced annual returns of more than 20 per cent. But
after a decade of frenetic growth, much of the lowest-hanging activist fruit
in the American corporate world may already have been plucked. The pressure
is thus rising for the sector to find new frontiers to explore.
Some funds are already doing that by changing their targets in America. As
their firepower swells, activists are tilting at bigger groups, including
profitable giants such as Apple.
They are also shifting sector: although tech used to attract little
attention from activists, it has been the main focus for attack this year
(and accounted for 30 per cent of campaigns in 2014, according to Moody’s).
Funds are now eyeing other long-ignored sectors, such as utilities and
The other frontier is the world outside America. Until now places such as
Asia and continental Europe seemed very hostile towards activists. But some
optimists in the activist world now think — or hope — that is starting to
There is little hard data to back that up — for now, anyway. Almost the only
tangible victory won by an American activist recently in Asia, for example,
was a campaign run by Dan Loeb to persuade Fanuc, the secretive Japanese
robotic group, to raise its dividends.
But fee-hungry American financiers are perennial optimists; particularly
when they have a swelling pot of cash to deploy. Corporate boards around the
world should take note: Elliott’s loss in South Korea may not mark the end
of the activist tale.
Particularly not given that the vote was so remarkably close.
© The Financial Times Ltd 2015