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TV news view of activist talent contest


Source: CNBC, March 27, 2015 article and videos




The young & the restless: Activism's rising stars

Lawrence Delevingne | @ldelevingne

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, EMC, and Zoetis.

"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) Icahn."

Can you guess the top six rising stars of activism? Meet them here

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 rich.

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 S&P 500.

"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

Read More > Activist to public pensions: Thank you!

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 Management.

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 targets include Ariad Pharmaceuticals, Vivus and Astex

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 the situation.

Read More > Activists want 'imminent retirement' of Ariad CEO

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 months.

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, Sotheby's, and Lear.

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

Mick McGuire, 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 Yahoo, Office Depot, Insperity and 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 Fortune profile to call Smith the "most feared man in corporate America."

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 Riverbed Technology, 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 or foe?

Monday, 9 Feb 2015 | 7:17 AM ET

Jeffrey Sonnenfeld, 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.

A recent 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 environment.

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 dissidents.

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 Corvex.

Lawrence Delevingne

Enterprise Reporter



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