The young & the
restless: Activism's rising stars
Lawrence Delevingne |
Friday, 27 Mar 2015 | 6:56 AM ET
Nex gen activists'
kinder but tough tone
Friday, 27 Mar 2015 | 6:52 AM ET
CNBC's Kate Kelly
reports the next generation of young hedge fund money managers
are making their presence felt on Wall Street.
They're young, they're hungry, and they're on the way to being the
next name-brands of activist investing.
Corporate executives and boards are getting to know—often
begrudgingly—names like Scott Ferguson, Mick McGuire and Jesse Cohn.
They and a handful of other 30- and 40-something hedge fund managers
are already running billions of dollars and agitating for change at
big public companies such as
Bank of New York Mellon,
"Several of the newer guys have notched impressive engagement wins,"
said Bryan Schneider, managing director at $12.7 billion hedge fund
investor EnTrust Capital. "As they continue to grow their capital base
and reputation there's no reason they can't become the next (Bill)
Ackman or (Carl)
Can you guess the top six rising stars of activism? Meet them
The next generation's rise comes as activism is surging overall.
Seventy-one corporate campaigns have been announced already this year,
which is on pace to set an annual record, according to data compiled
by FactSet. The highest annual total was 373 campaigns in 2007.
Activist investors typically build up a position in the stock of a
public company. Then they announce the stake, often via a public
filing, along with their vision of how to improve the business, such
as selling a unit, firing the CEO or buying back stock.
That process often includes the investor taking a seat (or several) on
the board to speed up change. If the company objects, it can lead to a
proxy contest—a usually contentious situation where both sides try to
convince other shareholders to vote on their competing proposals.
Regardless, the aim of activists is to increase the value of the
company's shares, in turn making their investors money—and themselves
Those tactics have produced strong returns of late, leading to a surge
in capital from investors.
After many investors pulled their money during the financial crisis,
activist hedge funds grew their assets under management 269 percent to
almost $120 billion between 2009 and 2014, according to Hedge Fund
Research data cited by the
Alternative Investment Management Association.
The annualized return of activist hedge funds from 2005 to 2014 was
8.12 percent, according to industry data and analysis provider
eVestment. That compares to 5.62 percent for all hedge fund strategies
and 7.67 percent for the
"Activist hedge funds have increasingly come into favor with investors
for several years, driven by strong performance, dynamic individuals
and high profile campaigns to improve shareholder returns," Hedge Fund
Research said in a recent report.
The next generation
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Four of the most important new names in activism took master classes
with the strategy's deans, Ackman and Icahn.
Icahn's top protégés are Keith Meister, who runs $8 billion Corvex
Management, and Alex Denner, who runs $639 million Sarissa Capital
Meister, 41, rose to be chief investment officer at Icahn Capital
before he launched Corvex in late 2010. Meister's firm has grown
quickly and now manages more money than any of his rising star peers,
thanks to backing from
Soros Fund Management,
Blackstone Group and others.
Recent targets include
American Realty Capital Properties,
energy group Williams Companies and
Fidelity National Financial. All three company stocks are
up this year.
A smaller activist with Icahn heritage is Denner, 45, who focuses on
healthcare at Sarissa. Denner, 45, has a background in biomedical
engineering from a doctorate at Yale University. He worked at Icahn
Capital from 2006 to 2011 following a brief stint as a healthcare
portfolio manager at prominent hedge fund firm Viking Global Investors
in 2005 and 2006.
Greenwich-Connecticut-based Sarissa was founded in 2013 and had grown
to manage $639 million at the end of February. Denner has favored a
small group of larger bets on healthcare-related companies; recent
Performance has been positive but subdued: Sarissa's main fund gained
7.9 percent from May to December 2013, 9.6 percent in 2014, and 2.5
percent in 2015 through February, according to a person familiar with
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Two more up-and-coming activists got their start at Pershing Square.
One is Ferguson, the first investment staffer hired by Bill Ackman
when starting the now well-known hedge fund shop in 2003. The Harvard
MBA rose to become a partner before leaving to found Sachem Head
Capital Management in 2012.
Ferguson, 40, now runs about $3 billion. A prominent recent target was
animal health company
Zoetis, an investment that Ackman joined in November with
an even larger stake. Pershing Square
won a board seat in February with the promise of another
appointment soon. The stock is up about 25 percent over the last 6
Pushed up by Zoetis and another player,
CDK Global, Sachem Head gained about 20.5 percent net of
fees last year, according to a person familiar with the situation
Read More >
Ackman's 'animal' spirits alive in latest Zoetis venture
Another Ackman protégé is McGuire. The former Pershing Square partner
founded Marcato Capital Management in 2010. Based in San Francisco,
38-year-old McGuire has grown his shop to manage $3 billion. Marcato
has taken on big companies recently, including
Bank of New York Mellon,
Marcato has generated double-digit returns every year since its
inception except for 2014, when it returned 5.3 percent. The fund up
about 2.4 percent this year after a big gain in February.
Read More >
BNY Mellon CEO Hassell has got to go: Activist McGuire
McGuire takes on BNY Mellon
Tuesday, 10 Mar 2015 | 12:21 PM ET
Marcato Capital Management, speaks to the FMHR traders about
what he finds broken at BNY Mellon.
To be effective, activists have to manage enough capital to take
meaningful positions in companies. But brand-name backgrounds help
make up for smaller asset bases.
"It's not cut and dry as to what size is required. There are smaller
firms run by well-pedigreed (portfolio managers) that definitely get
the attention of target companies," said Rick Teisch, director of
research at hedge fund allocator Liongate Capital Management.
Teisch noted the "added firepower" of linking up with their former
firms or others to increase influence, as done by Ferguson with
Pershing Square on Zoetis, Meister with Soros on
ADT, and others.
Beyond the big two
Two more managers have distinguished themselves without a connection
to Ackman or Icahn.
Jeff Smith, 42, is head of Starboard Value, a $4 billion New
York-based firm. The University of Pennsylvania grad originally
managed the strategy starting in 2002 at Ramius, a larger money
manager affiliated with Cowen Group, but spun out in 2011.
Recent corporate engagements include
LSB Industries. But the best known is
Darden Restaurants, the Olive Garden owner where Starboard
managed to oust the entire 12-person board in October. Darden's stock
is up nearly 35 percent over the last year.
All that led to a recent
profile to call Smith the "most feared man in corporate
Read More >
Darden board ouster: A warning to corporate America
Jesse Cohn is the only manager in the group not running his own shop,
but he's just as powerful.
Cohn, 34, is head of U.S. equity activism at Elliott Management, the
more than $25 billion firm led by Paul Singer. It's not clear how much
of that Cohn manages, but he's taken on big targets like
Juniper Networks and
EMC, each of which acquiesced to some of Elliott's demands.
In all, Cohn led more than 35 activist campaigns, which he joined in
2004 after a stint as a
Morgan Stanley analyst.
The managers mentioned in this story either declined to comment or
were not available to speak.
Explaining activism's surge
Activists ... friend
Monday, 9 Feb 2015 | 7:17 AM ET
Yale School of Management, shares his thoughts on the difference
between "faux" activist and those that add shareholder value.
Experts cite several reasons for activism's resurgence.
One is companies taking note of hedge fund demands. "Management and
boards have seen what happens when high-quality activists enter the
fray. They understand the need to take them seriously," Teisch said.
Another reason is the relative financial strength of companies since
the financial crisis.
white paper on activism by industry association tracker
AIMA noted high levels of corporate cash, strong merger and
acquisition markets, and cheap debt as drivers of the positive
It also highlighted that activists have been able to agitate for
change at even larger targets thanks to increasing involvement by
historically passive institutional investors. Several regulatory
changes benefiting shareholder rights have also given power to
A generally rising stock market has helped too. That has given
managers cover to try out their ideas on companies, a process that
investors have less patience for if the stock price is falling and the
hedge fund is losing money.
"Not to take anything away from some stellar performers, but it's been
a prime environment for the strategy," Teisch said.
Read More >
ValueAct's Jeff Ubben: Activist hedge funds can do real harm
The success of activists will ultimately hinge on their ability to
affect positive change at their target companies. While more and more
funds are trying activism, there's no guarantee of success, especially
when the bull market ends.
"As is the case with most potentially lucrative activities, many
players have entered the mix. There will be a few winners, but many
more losers," Teisch said.
—With reporting from CNBC's Kate Kelly and Dawn Giel.
This story was updated with a new assets under management figure for