Activist investors enjoy strong rebound in '23, gird for more proxy fights

Pershing Square Holdings

16/01/2024 16:45

By Svea Herbst-Bayliss
       Jan 16 (Reuters) - Activist investors roared back to
double digit returns in 2023 after a year of losses, with a
stronger equity market and savvy stock picking fueling their
rebound, fund managers and their clients said.
    More corporate battles appear to be in store as fresh
capital is ready to flow into the sector and newcomers flirt
with using tools made famous by veteran corporate agitators like
Carl Icahn.
    Activist investors, who push corporations to change
leadership, streamline operations or put themselves up for sale,
boasted an average 20.2% return last year, Hedge Fund Research
data showed. In 2022 activists lost an average 16%.
    Some investors' returns were even better with Mason Morfit's
ValueAct Capital posting a 39% return and Bill Ackman's Pershing
Square Holdings reporting a 27% gain.
    Legion Partners Asset Management, which pushed for changes
at Twilio  TWLO.N  among other companies, gained 35%; healthcare
oriented Caligan Partners rose 37%. Engaged Capital returned
29%, Sachem Head Capital Management rose 24% and Corvex Select
Equity Fund rose 21%, investors in the funds said. Anson Funds
Management, a multi-strategy fund which is building out its
activism strategy, gained 18%, an investor said.
    Representatives for the firms declined to comment.
        The average gain for activists trailed last year's S&P
500 24% gain. But the average loss in 2022 was also not as sharp
as the 18% dive for the S&P. Many hedge funds tell investors
they will not beat markets on the way up but will protect
capital on the way down.
  
    "After a largely disappointing 2022, activists generally
fared much better last year," said Sebastian Alsheimer, a
partner in law firm Wilson Sonsini Goodrich & Rosati's
shareholder engagement and activism practice. "They were helped
by a rising stock market, but also deserve credit for deftly
identifying targets."
        Investment bank Lazard data showed 252 new activist
investor campaigns globally last year, up 7% from 2022 and
setting a new record for activity, as investors pressed more
European and Asian companies to implement changes.
    Activist investors targeted large household name companies
including entertainment giant Walt Disney  DIS.N , cloud
computing company Salesforce  CRM.N , and pharmaceutical giant
Bayer  BAYGn.DE  as well as much smaller companies like Clear
Channel Outdoor  CCO.N , Forward Air  FWRD.O  and Overstock.com,
now called Beyond  BYON.N .
    As interest rate hikes and other factors slowing growth hurt
some companies "activists successfully pushed for cost cuts,
management changes and strategic alternatives," said Jessica
McDougall, a partner and chair of corporate governance and
shareholder engagement at Longacre Square Partners. "Many boards
didn't realize until too late that it takes more than refreshing
directors to offset down performance in today's climate." 
    Looking ahead to this year, investors are ready to push
companies harder for change, lawyers, bankers and hedge fund
managers said. They noted that sometimes activists accelerate
changes the board is already contemplating. Some investors said
they were ready to commit fresh capital to activists on the view
returns will remain strong with a pick up in deal making.
    Last year a record 77 first-time activists initiated
campaigns, up from 55 the year before, Lazard data showed.
    "We expect significant activity in the smaller market cap
space because of the relative underperformance compared to the
large cap spectrum last year," Wilson, Sonsini's Alsheimer said.

 (Reporting by Svea Herbst-Bayliss; Editing by David Gregorio)
 ((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))