York Capital Management founder Jamie Dinan said the best way to create superior return is through activism.
"In order to create alpha right now, activism is number one in my book, and I think that's true in any market," the hedge fund manager said at the Project Punch Card Conference in New York City on Wednesday.
While "a big fan" of activism, Dinan said the work he has done is "behind the scenes," which contrasted notable investors like Bill Ackman and Carl Icahn who frequently call on companies for changes publicly.
"We'd meet with the CFO, but we won't go public. We don't want to be a disrupter because we don't want to embarrass anyone," Dinan said.
Activists often invest in what they believe are underperforming companies and then advocate for change. They usually purchase substantial amounts of shares of a public company in an attempt to obtain seats on the board and change how it operates. Such proposals often range from mixing up operational strategy to firing and replacing CEOs and board members.
Alpha comes from "constructive activism," Dinan said. "When a company needs a wake-up call and there's a blue print for how to create shareholder value. Every firm has a mandate."
It has become more difficult for managers to create alpha in an environment of better market efficiency, so activist investors believe they could create superior performance by reshaping how companies operate.
York Capital has approximately $20 billion in assets under management.