Who Ranks Highest Among Corporate Raiders?
While hedge funds on average are having another lackluster quarter, there may be one group of them that’s still shining.
The S&P 500 rose 12 percent in the first three months of 2012, while hedge funds only returned 5 percent, according to Hedge Fund Research.
For “event-driven” funds — including, but not limited activist investors that demand strategy and/or leadership change — those returns were even lower for the quarter.
To play the modern activist game, though, longer-term investments are required — meaning a more wide-reaching metric than one quarter must be used to measure their success, so industry group 13-D monitor measures performance from the time situations become “active” — or, a large stake is disclosed publicly.
By that metric, the clear winner of the group is Bill Ackman’s Pershing Square Capital Management. Though Ackman’s annualized returns are buoyed by one blockbuster bet — minting billions from bankrupt real estate at General Growth Properties — it’s still up 148 percent since the firm’s inception.
Dan Loeb’s Third Point is not far behind. Loeb is currently embroiled in a highly publicized proxy fight at Yahoo!, but his past investments have lifted his firm to annualized returns of 98 percent.
JANA Partners, led by Barry Rosenstein, has returned almost 70 percent to investors, and newcomer Starboard Value is also up 64.23 percent. Relational Investors, famed short sellers Greenlight Capital have also printed some very positive ink.
According to 13-D Monitor’s calculations, investments from established activists haven’t seen the outsized returns of the young guns. Though Carl Icahn had a good 2011 — with well-timed bets on Lawson Software and Motorola Mobility — his returns appear middling, though still up 26.6 percent. For legenday activist Nelson Peltz, his Trian Fund Management has returned 13.3 percent.
At least they’re printing green, though — hedge funds like Phil Falcone-led Harbinger and Breeden Capital Management (led by former SEC Chairman Richard Breeden), positive territory is a long way away.
A common theme among the top-tier firms is an intensive commitment of capital and research to each campaign — and not backing down. Unlike the barbarians of yore, showing up at the gate isn’t enough.
“The most successful activists are the ones who do their homework,” said David Katz, a partner at law firm Wachtell, Lipton, Rosen & Katz. “They’re prepared to spend the capital necessary to get the returns, and they do that intelligently.”
Follow Kayla Tausche on Twitter: @kaylataushe