Activist Investors: More Targets, Lower Returns

In 2014, 344 companies were targets of activist shareholders, but the average activist fund returned only 4%, finds a new study.
Katie Kuehner-HebertFebruary 4, 2015
Activist Investors: More Targets, Lower Returns

Two-thousand fourteen has been dubbed the Year of the Activist Investor, but 2015 could very well wipe out that designation.

A Fortune story on Tuesday cited a new study, co-produced by research firm Activist Insight and law firm Schulte Roth & Zabel, that states 344 companies were targeted in 2014 by activists, mostly hedge funds “looking for some kind of shakeup.” In 2013, 291 companies were targeted by such funds.

But expect even more activism in 2015, as a slowing global economy retards the growth of more large companies, spurring activist pressure for them to split up, restructure, or outright sell themselves, according to the report.

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The activists’ clout is reflected in the amount of money they have been able to raise, which collectively stands at about $237 billion, the authors wrote. However, since hedge fund money is more “fluid,” than that of private equity firms, such activists have to demonstrate success faster so that investors won’t pull their money and put it elsewhere.

The most successful activist in 2014 was Starboard Value, run by Jeff Smith, which was able to convince shareholders to replace the entire board of Darden Restaurants, owner of Olive Gardens, according to the report. Smith had earlier mocked Olive Garden for not salting its pasta water.

Overall, activists in 2014 were successful nearly 75% of the time in getting companies to make at least some of their requested changes, the report said. As such, the average activist fund was up 4% last year, versus 13% for the market.

But do activists really know how to run a company better, or are shareholders responding because they are able to make any kind of change, Fortune questioned.

“It might be too soon to tell if activism is good or bad for corporate America,” Fortune wrote. “But if the gap between activists’ success in getting companies to do what they want and their subsequent investing performance continues to widen, activists won’t be around long enough to find out.”

Source: Fortune

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