The Activist Investor Blog
The Activist Investor Blog
How to Invest In Activist Situations
[Corrected on 4/9/14 to reflect the assets of the 13D Activist Fund]
There’s actually a number of ways to do it. Below we set forth a framework for understanding the alternatives, and for assessing the pros and cons of each.
Direct Activist Investment
This is what we think of most of the time. Either already own shares in an underperforming company, or find and buy shares of a suitable underperformer, and have at it. TAI and others are dedicated to this idea.
❖Keep all the alpha for yourself
❖Control the strategy and tactics
❖Bear all the expenses of the activist project.
Follower Investment
Instead of investing in a company and undertaking your own project, you can buy shares in a company after another star fund manager/activist investor has started to do the dirty work. We’ve seen this called a remora strategy, after the parasitic fish that lives off of sharks (how apt). You can find opportunities by monitoring Form 13D filings (we like SEC Info) and news media.
❖Save on the expenses of the activist project
❖Invest with star managers without paying their fees
❖Relinquish some or most alpha to the star manager
❖Compete with others (arbs, other remora) for liquidity and returns
❖Need to screen and select managers, as well as companies.
Fund Investment
Instead of picking individual companies, you can pick just star managers, of course. There are now dozens of activist funds, from the biggest, oldest, and baddest (Trian and Relational will both gladly accept your allocation) to the newest and smallest (Meson). Managers lately form new ones almost weekly, so you have much from which to choose.
You can find listings and analysis at 13D Monitor, Activist Insight, Hedge Fund Research, and FactSet SharkRepellent, among other places. The latter is a general hedge fund analytical firm that now also tracks activist funds. The former two specialize in activist funds.
Now there’s even a remora fund, 13D Activist Fund. It’s actually a $235 million mutual fund, so even the smallest investors can access it. It picks stocks based on Form 13D filings, and has beat the S&P 500 since 2011 inception, no small feat.
❖Keep all the alpha (or only some of it for the 13D Activist Fund)
❖Pay steep management fees.
Fund-of-Funds
Activist managers seem kind of ideal for a FoF strategy. One needs to assess more than track record, and should evaluate a manager’s activist strategy and tactics. Also, given that an activist investment could take 2-3 or more years to pay off, having a diversified portfolio of activist managers makes sense. So, using an expert to select and allocate to different activist managers could work well.
Surprisingly, there are only a very small number of activist FoFs:
❖Lakeview Opportunity Fund - led by Dick Elden, who founded the original FoF company (Grosvenor Capital)
❖The Global Activist Fund - part of Geneva Partners, an investment manager run by Franck Berlamont. Evidently the fund is listed in London and Ireland, although we can’t find any additional information.
❖Global Activist Fund LP - not to be confused with the other Global Activist Fund, from Geneva Partners, just raised $600 million through its manager Entrust Capital, led by Gregg Hymowitz.
The rationale (or criticisms) for all FoFs apply here:
❖Rely on someone else to do the heavy lifting of screening and selecting managers
❖Avoid the steep minimums ($10 million or more) that some famous activist managers require
❖Pay a separate fee to the FoF manager, in addition to the activist manager fees.
You know where we stand - we like direct activist investing. But, fund investing has its virtues, and we expect it to continue to grow and develop nicely in the coming years.
Tuesday, April 8, 2014