Sat, Aug 27, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Activist investing back in fashion; Ackman bullish on U.S. economy

Wednesday, October 13, 2010
Opalesque Industry Update – Activist hedge funds suffered a lot during the 2008 global financial crisis. But with improving economy and relatively cheap stock markets, as well as cash-heavy companies, the strategy is ripe for a rebound.

A report by the New York Times cited known activist investor William A. Ackman, CEO of $7bn Pershing Square Capital Management, who bought majority stakes in retail giant J.C. Penney and Fortune Brands. Ackman’s move renewed speculations that he was looking to shake up the brands (see Monday’s article).

Activist investors are described as speculators in underperforming companies. They introduce major changes to raise stock prices, including changes in management and asset sales. However, the last financial crisis created trouble for this type of strategy as money for acquisitions went dry and the hedge fund industry was itself being squeezed.

But activist hedge funds have registered good returns this year. Among them, according to WSJ.com, were : Cevian Capital, a Eur3.5bn Stockholm-based activist hedge-fund firm run by Christer Gardell and Lars Forberg, which returned almost 14% in September and 28% YTD; Trian Partners, run by Nelson Peltz, which was up about 7.5% in September; and Third Point Offshore, a $2bn activist fund run by Dan Loeb, which gained 3.9% in September and is up 19.1% YTD. Ackman’s Pershing Square returned 4% in September, leaving it up about 7.5% YTD.

These activist investors are known for their aggressive positions. Gardell, a former McKinsey & Co. partner, has been described as "the butcher" by Swedish newspapers because of his hardliner stance when introducing major changes at prominent, cash-rich companies like Volvo AB and Munich Re. While Trian Partners, which owns almost 19% of fast-food restaurant company Wendy's/Arby's Group Inc., has been trying to re-organize the business and re-fashion its menu offerings.

Last week, Barry Rosenstein, head of New York-based hedge-fund firm Jana Partners, said that he saw a very interesting opportunity for activist investors not seen since the mid-1980s, reported MarketWatch.com.

There are three main ingredients for successful activist investing: lots of cash, cheap borrowing costs, and relatively cheap stocks. These three are in abundance this year.

According to Rosenstein, corporations are sitting on $3tln of cash on their balance sheets, or some 12% of company assets. He said this abundant cash is “unsustainable.”Meanwhile, the Standard & Poor’s 500 index trades at 12 times next year’s earnings, and corporate borrowing rates are at record lows.

“This makes financing acquisitions very attractive,” Rosenstein said.

He explained that one main driver of acquisitions are private equity firms which have at least $500bn in cash. Nearly half of its is due to be given back to their investors in the next five years.

“Guess what? They’re going to find a way to spend it, not give it back to their investors,” Rosenstein said.

Rosenstein's Jana Partners climbed about 4.5% in September and is roughly up 4% so far in 2010.

U.S. economy ripe for acquisitions
On Tuesday, Ackman said he was bullish on the U.S. economy and he is predicting a new wave of acquisitions, according to ABC News.

"I'm more bullish than I am bearish. I see a lot of reasons for economic improvement in this country," Ackman said in his speech during the Value Investing Congress in New York. He also noted that corporations are now leaner and more efficient after the 2008 financial crisis.

Speaking in the same conference, Lee Ainslie, another activist investor who runs $10bn hedge fund Maverick Capital, said that technology stocks are inexpensive and that companies have a lot of cash on their balance sheets.

"We are willing to go extremely active so long as you never hear about it," Ainslie declared.
- Precy Dumlao


Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Strategies - The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I, Hedge funds get more pushback on terms as enthusiasm for strategy wanes[more]

    The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I From IBTImes.co.uk: To illustrate a strategic gap common to today's portfolio managers, George Sokoloff, PhD, founder and CIO at Carmot Capital, proposes an interesting thought experiment – a breakdown of

  2. Institutional investors - Investors set to increase allocation to private debt, With investment income key, Richmond retirement system faces funding challenges[more]

    Investors set to increase allocation to private debt Investors are set to increase their allocation to private debt, with 60% revealing they believe the private debt market will grow over the next 12 months, according to a new study by Elian, a leading funds services provider. 41%

  3. Investing - Hedge funds snap up banks, unload Apple, Some of hedge funds' favorite stocks are finally starting to beat the market, Einhorn's Greenlight shifts positions, Treasury yield climbs to two-month high as Fischer joins hawks, 9 stocks smart investors put their money in last quarter[more]

    Hedge funds snap up banks, unload Apple From Barrons.com: Prominent hedge funds have a newfound love of big banks, and some have a distaste for shares of Apple, regulatory filings released last week show. The filings suggest that the funds have been pivoting their portfolios in recent mon

  4. Chesapeake energy seeks $1 billion loan to refinance debt[more]

    From Bloomberg.com: Chesapeake Energy Corp. is seeking a $1 billion loan as the company battered by cratering fuel prices and credit downgrades takes a step to address its $9 billion debt load. The natural gas producer hired Goldman Sachs Group Inc., Citigroup Inc. and Mitsubishi UFJ Financial Group

  5. Institutions - Nordic pension funds magnify focus on unlisted and direct investing, building up teams[more]

    From IPE.com: As bond yields remain at low or negative levels, pension funds and other institutional investors in the Nordic region are stepping up efforts to find higher returns by adding more unlisted investments to portfolios and are expanding in-house teams in order to do this, according to new