A hedge fund’s job is to make money, bottom line. Over the last twenty years, hedge funds have actively entered the activist arena.
Activist hedge funds make a large enough investment in a company to be able to participate in the management and firm decision making. Activist funds can be looked at taking a private equity approach to the public markets: they are very long-term oriented.
Activist investors like to make investments in companies where management lacks the proper incentives to maximize shareholder value. Without proper incentives in place, management can make excessive compensation and perks and suppress free cash flow.
Activist hedge funds will differ from traditional funds by having a less diversified portfolio. One of the best known activists to date is Carl Icahn. He opened up two hedge funds and made activist investments in large companies such as Time Warner and Blockbuster. .
Activist Hedge Funds:
- Atlantic Investment Management (Active in OSK, SWK, LZ)
- Blue Harbor Group (Active in CACI, SWS, FCN)
- Blum Capital (Active in ESI, SBAC, JDAS)
- Breeden (Active in BYI, FLS, SWK)
- Cevian Capital (Active in SWEDA SS)
- ESL Investments (Active in CSCO, GPS, STX)
- Icahn (Active in AMLN, MOTR, CLX)
- MSD Capital (Active in APL, EXXI, TAT)
- New Mountain Vantage (Active in (NFG, LINTA, NCR)
- Pershing Square Capital (Active in GGP, FO, GM)
- Sageview Capital (Active in LIFE, SD)
- SPO Advisory (Active in CPN, V)
- TCI (Active in KO, UNP, WLP)
- Trian Partners (Active in FDO, K, KAR)
- ValueAct Capital (Active in BCR, VRSN, SNA)
- *Investments as of 2010
Types of Activism Investments:
- Engage Management: Activist will engage with management and try to increase shareholder value.
- Capital Structure: Activist will target capital structure issues such as recapitalization, dividends, or stock buybacks
- Corporate Governance: Activist will target corporate governance issues such as poison pills, electing directors, removing company management, or removing board members
- Business Strategy: Activist will generally try to spin-off unprofitable or “non-core” assets, push for particular merger or sale, or reject other takeover bid
- Asset Sale: Activist will push for the company to sell itself or sell parts of the business
- Block Merger: Activist will block a proposed merger
- Financing/Bankruptcy: Activist provides financing for a distressed company