December 23, 2012 6:24 pm

Boom year for activist investors

By Dan McCrum in New York and Sam Jones in London

Investment funds that seek to profit by pushing for strategy shifts at companies or improvements in corporate governance have had a banner year, posting returns well ahead of the US equity market and their stock trading peers.

The growing status and firepower for activist investors points to more boardroom battles ahead for 2013, as big pension funds throw money and support behind the agitators.

Leading the pack in terms of performance this year are The Children’s Investment Fund, Corvex and Marcato Capital Management, with returns of around 25 per cent as of the end of November, according to investors.

For TCI, winning bets included Japan Tobacco, Disney and News Corp, the media company which decided to spin out its print media businesses this year in the wake of the UK phone hacking scandal.

Marcato and Corvex both had success at the Corrections Corporation of America, where they are attempting to persuade the prison operator to convert into a real estate investment trust. Pressure from Corvex also helped push Ralcorp to sell itself to to Conagra last month.

Both hedge funds are run by disciples of more established activists. The $900m Marcato was started by Mick McGuire after he left Pershing Square, the $11bn fund run by Bill Ackman. The $6bn Corvex is run by Keith Meister, a former lieutenant to corporate raider Carl Icahn.

Other strong performers include Jana, the $2bn flagship fund run by Barry Rosenstein is up 21 per cent this year, which has persuaded several companies to split apart this year, and Cevian, the $7bn European activist fund up almost 21 per cent at the end of November according to investors.

The small, focused portfolios of activists can be susceptible to periods of underperformance, and three of the more established firms have trailed this year.

It has been a mixed year for Relational Investors, run by Ralph Whitworth. The firm’s small- and mid-cap strategy, with almost $2bn under management, had returned over 26 per cent this year, according to investors. However the large-cap strategy, with twice the capital, is up only 6.9 per cent, hit by declines in the value of computer maker Hewlett Packard, where Mr Whitworth is on the board.

Bill Ackman’s Pershing Square, was up only 6 per cent at the end of November, investors said. However, they said it was likely to have had a strong December as Mr Ackman unveiled a high-profile position betting on a fall in the share price in Herbalife, the nutritional supplement direct. Shares in the company fell nearly 38 per cent last week following Mr Ackman’s attack.

The hedge fund of Trian Partners, run by Nelson Peltz, Edward Garden and Peter May, was up 4 per cent for the year at the end of November, according to investors.

All the firms declined to comment.