Activist Investors Build Up Their War Chests
Third Point Raises $2.5 Billion That the Hedge Fund Could Deploy by Year-End; Others Add to Their Coffers

CEOs, beware: Activist investors who target America's corporations are gathering more ammunition.

A number of the largest activists are raising billions of dollars, in an effort to take advantage of their increasing clout in boardrooms and above-average hedge-fund returns.

Daniel Loeb's Third Point LLC recently raised a $2.5 billion war chest that the hedge fund could deploy by year-end, people familiar with the matter said Thursday. Other activists, including Trian Fund Management LP, Pershing Square Capital Management LP and Jana Partners LLC, are also expanding the size of their coffers, people familiar with those firms said.

Funds under management by these activists and others grew by $9.4 billion in the first half of the year to $111 billion, gaining more in that period than in the previous two years combined, according to industry researcher HFR. Mr. Loeb and some other activists have described the current environment as the best they have seen for raising cash.

The gains come as activists, who typically buy stakes in companies and agitate for strategic or financial changes, are now a force to be reckoned with at U.S. companies. The investors, once dismissed as corporate raiders, have gained board seats or forced change at such blue-chip companies as Microsoft Corp. and Procter & Gamble.

The investors have also turned in returns that have outperformed their hedge-fund peers of late. Through August, activist investors returned an average 5.9% for the year, according to HFR, compared with a 3.9% gain for hedge funds in general. Still, both trailed the S&P 500's 9.9% gain. Third Point's flagship fund was up 6.4% after fees, including a 1.7% gain in August.

Investors say successful activist campaigns can create returns that are independent of broader market conditions.

Mr. Loeb raised his new funds over about two weeks this August. The amount is one of the largest sums a hedge fund has amassed so quickly, according to fund experts.

Third Point plans to use the funds to buy up stock in several large companies in the U.S. and abroad, people familiar with the plans said. It was unclear Thursday which companies Third Point has homed in on and whether the hedge fund already has stakes in them.

Third Point's recent reluctance to take money—it even gave back over $1 billion to investors late last year—likely contributed to the strong interest, but the fundraising also illustrates investors' continued appetite for exposure to activists.

Third Point will now manage a new high of $17.5 billion, cementing it as one of the largest activist investors on Wall Street, past the roughly $15 billion managed by William Ackman's Pershing Square and Jeffrey Ubben's ValueAct Capital Management LP.

Third Point told investors this week that Mr. Loeb hoped to work constructively with the management teams in his coming activist positions.

The hedge fund received investor requests totaling $3.4 billion, well over the $1.5 billion the fund had been targeting, Third Point told investors. The money came from more than 150 investors, nearly all of them existing clients, one of the people said.

"Managers who can do that are few and far between," said Bob Leonard, Credit Suisse Group AG’s head of capital services, which introduces hedge funds to potential investors. "It takes pedigree and track record to be able to flip the switch and get that kind of capital."

Pershing Square's Mr. Ackman is counting on the current demand to help fuel his attempt at a $3 billion initial public offering for a fund in Europe this year to provide more permanent capital.

Pershing Square recently hired Deutsche Bank AG and UBS AG for the process, according to people familiar with the plans. Pershing Square's flagship fund rose 25% in the first half of the year, according to a letter to investors.

"The popularity of activism as a strategy has increased due to the potential it offers for substantial returns," Mr. Ackman wrote in a letter to investors last month.

Similar arguments are being made by other large activists taking in more money.

Trian, led by Nelson Peltz, Peter May and Ed Garden, raised about $1 billion in the first half and is on pace for another $1 billion by the end of the year, according to one person familiar with the fund. Trian's total assets currently stand at about $10 billion, most of which is currently in the firm's funds that lock in investors for longer periods of time, the person said.

Jana's total has risen to $11 billion, according to a person familiar with the matter, though only a portion of its investing is considered activism.

Elliott Management Corp. received commitments for $3.3 billion from investors in the span of about three months last year. Elliott currently manages about $25 billion, with activism part of the total.

Write to Juliet Chung at juliet.chung@wsj.com and David Benoit at david.benoit@wsj.com