Why so many “activist” investors are barraging companies with money-making schemes

Why so many “activist” investors are barraging companies with money-making schemes

By John McDuling @jmcduling February 24, 2014

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It’s not just Carl Icahn. Activist investors are everywhere at the moment. They’re agitating for change at companies as diverse as Darden Restaurants, the owner of the Red Lobster and Olive Garden restaurant chains, and Dow Chemical Co, the 116-year-old conglomerate.

The chart above explains why. Put simply, campaigns by activist investors are working, in the short term at least. The chart shows the median performance of stocks targeted by activist investors three months following the announcement of a campaign to press a company to take particular actions to increase value for shareholders. In 2013 these targeted stocks outperformed their sectors by 3.52%. It’s worth noting, however, that from 2007 to 2009, those stocks performed worse than their sectors. This suggests that the strategy works well when the markets are doing well and poorly when they aren’t.

Overall, activist hedge funds returned 21% last year, compared to 7% for the broader HFR Equity Hedge Index, Goldman says.

The number of activist campaigns against US companies has actually moderated since a peak in 2008, according to Goldman. But with 2014 less than two months old, and returns from the strategy on the rise, don’t be surprised to hear more bluster from hedge funds agitating for change at what they consider underperforming companies.

As you can see from comparing the two charts above, it takes a few years of sub-par or above-average returns for the volume of activist activity to ramp down or up.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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