Activist Hedge Funds
A Possible Return of Activist Hedge Funds
Activist hedge funds suffered big losses during the financial crisis. After that period, hedge fund activists seemed to be fading out. But now activist hedge funds seem to be making a comeback, as the head of Jana Partners explains, today's conditions present some great investment opportunities for activists.
The 2008 financial crisis left activist hedge funds with big losses. But the strategy is showing signs it's in revival mode.
Such investors often take big stakes in under-performing, cash-heavy companies. They sometimes push for strategic changes, including share buybacks, bigger dividends and asset sales.
Barry Rosenstein, head of hedge-fund firm Jana Partners, says that today's conditions represent the best investment opportunities for activist investors he's seen since the mid-1980's.
The three main ingredients have been in abundance this year: lots of cash, cheap borrowing costs and relatively cheap stocks.
Corporations are sitting on about $3 trillion of cash, or about 12% of company assets, Rosenstein said, adding this is "unsustainable."
Meanwhile, the Standard & Poor's 500 index trades at about 12 times next year's earnings, and corporate borrowing rates are at record low.
"This makes financing acquisitions very attractive," Rosenstein said.
One favorite tactic of activist investors is to persuade companies to sell under-performing businesses, split themselves up or sell themselves entirely. Source
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