U.S. activist investors post strong gains as needling companies pays off

Medifast

24/12/2019 06:01

By Svea Herbst-Bayliss
    BOSTON, Dec 24 (Reuters) - Activist investors who are
shaking up Corporate America with calls for operational fixes,
refreshed boards and even sales of a company are delivering
their best returns in six years with double-digit gains for 2019
after big losses in 2018.
    The surge in returns is energizing experienced corporate
agitators as well as newcomers and may force more companies into
costly battles with shareholders over their corporate future
next year, managers, lawyers and bankers said.
    Through the end of November, activist managers on average
returned 13.09%, according to data from Hedge Fund Research,
which tracks various investment strategies' returns. Fueled by
high double-digit returns at funds run by William Ackman, Barry
Rosenstein and Glenn Welling among others, activists are handily
outperforming all other types of hedge funds where the average
fund returned 8.5% this year, HFR data shows.
    The gains illustrate a sharp recovery from 2018 when the
average activist lost 10.4%, in part because a late-year stock
market tumble erased gains at many funds.
    Hedge funds run by activist investors are traditionally
reserved for institutional investors and wealthy private
clients.
    To be sure, activists are benefiting from this year's strong
stock market gains where the Standard & Poor's 500 index  .SPX 
has climbed 28.5% so far. But many added spice with demands for
changes or by watching earlier prodding pay off.   
    "Many of the initiatives that were advocated for by our
managers resulted in improved performance," said Gregg Hymowitz,
chief executive officer of EnTrust Global, a large investor with
activist managers.
    Through the middle of December, Ackman's Pershing Square
Holdings portfolio gained 57%, lifted by investments including
Chipotle Mexican Grill Inc  CMG.N , where Ackman helped install
a new chief executive officer last year.
    Douglas Braunstein's Hudson Executive Capital gained 52%
through the end of November, fueled by gains at Cardtronics Plc
 CATM.O  which gave Braunstein a board seat last year.
    Some investors returned with fresh demands directed at 
companies they had previously targeted. Glenn Welling's Engaged
Capital, which is up 30% through November, came back to
nutrition and weight loss company Medifast Inc  MED.N  while
Jana Partners took a second run at restaurant chain Bloomin'
Brands Inc  BLMN.O , which may consider selling itself. Corvex
Management is up nearly 20% through the end of November, months
after its founder, Keith Meister, joined the board of MGM
Resorts International  MGM.N .
    Representatives of the funds declined to comment.
    In the United States alone, activists targeted 464 companies
this year through mid-December, roughly the same number as last
year, data from Activist Insight shows.
    Next year, activists may perform even better, investors and
managers said, noting there are plenty of inefficiencies to
repair at smaller companies.
    While fresh money many not chase this year's strong returns
as investors worry that a recession will hit at some point,
investors said they are willing to fund specific campaigns in
so-called special purpose vehicles. 
    "Activists are value investors, which are starting to become
more in favor," said Ken Squire, who runs 13D Monitor and the
13D Activist Fund. "Over the past 15 years, activists went from
being frowned upon to being accepted and now respected." 
    

 (Reporting by Svea Herbst-Bayliss in Boston
Editing by Matthew Lewis)
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