Thu, Jul 24, 2014
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. Events – AIMA Australian Hedge Fund Forum, Sept. 16, Sydney[more]

    AIMA Australia invite you to join us at our annual Hedge Fund Forum on Tuesday 16th September 2014 at the Sofitel Sydney Wentworth. The AIMA Australian Hedge Fund Forum is a non-profit hedge fund conference organised by the industry for the industry, featuring quality Australian and internation

  2. Opalesque Exclusive: Loeb, Grantham cite growing economic concerns in letters[more]

    Bailey McCann, Opalesque New York: Hedge fund manager Daniel Loeb, head of Third Point, and Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co. have both released their quarterly investor letters today. While news is positive on some fronts, and both men see pockets of opportunity, they also h

  3. Investing – Hedge funds expect Netflix earnings to catapult forward, Third Point's Loeb takes stakes in Fibra Uno, YPF, Royal DSM, Lake Capital in talks to back Engine Group[more]

    Hedge funds expect Netflix earnings to catapult forward From Investing.com: Netflix has made major strides forward in 2014 despite ongoing battles with the FCC and cable companies over the issue of net neutrality. The FCC has now received over 500,000 comments from the public on its pend

  4. Opalesque Roundtable: Success in hedge fund marketing not linked to performance, but investor appetite[more]

    Komfie Manalo, Opalesque Asia: Success in marketing a fund is not linked to the performance, but to investor appetite, to the way you can market the fund, and to how much time you can spend to raise assets, said Antoine Rolland, the CEO of incubator and seeding firm

  5. Hedge fund manager Winton Capital making headway with long-only strategy[more]

    From PIonline.com: North American investors are helping Winton Capital Management Ltd. make progress — albeit slowly — toward its founder's goal of becoming a $100 billion company. The firm's ticket to quadrupling its assets under management is unlikely to be one of its scientifically designed manag