The Morning Brief: A Record Year for Activist Campaigns, Despite Losses

This year was a record one for shareholder activism. However, you wouldn’t know it judging by the performance of many of the hedge funds that specialize in this strategy.

A record 355 activist campaigns have been announced against U.S. companies so far this year through mid-December, according to Sharkrepellent.net, which researches takeover defense strategies. This exceeds the previous record of 353 set in 2008. The least active year since the financial crisis was 2010, when there were just 219 campaigns. This year also stands out for the number of large companies that were targeted. Sharkrepellent.net counts 33 Fortune 500 companies as targets of these activist campaigns this year, including General Electric, American Express, American International Group and The Bank of New York Mellon Corporation. In addition, a record 127 activist campaigns resulted in the activist gaining at least one board seat, according to the report.

Keep in mind that these activist campaigns were not only waged by hedge funds. The perpetrators also included companies, individuals, labor unions, mutual fund managers, pension funds and other types of investors. Of this group, however, 223 of the campaigns were waged by hedge funds, according to Sharkrepellent. This is exactly the same number as last year. This compares with 212 in all of 2013, which was way up from 160 to 169 in each of the previous three years. The peak was 2008, when there were 250 activist campaigns waged by hedge funds.

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So, one would think that given all this activity, the activist hedge funds cleaned up this year. But this was hardly the case. Many of them have struggled and are losing big bucks.

For example, William Ackman’s New York-based Pershing Square Capital Management recently warned investors that 2015 will be its worst year in its 13-year history. In fact, its public fund, Pershing Square Holdings, is still down 19.5 percent for the year, even though it is up 1.6 percent for the month through December 22. The Pershing Square funds have been hurt by their long position in Valeant Pharmaceuticals International and Platform Specialty Products, to name just two losers this year.

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Among other activist firms, Ackman protege Richard (Mick) McGuire III’s Marcato International, managed by San Francisco-based Marcato Capital Management, is down 3.4 this month through December 15 and is now down 9.12 percent for the year. The hedge funds managed by Barry Rosenstein’s New York-based Jana Partners were down between 6.3 percent and 6.7 percent through November. Jana has been hurt, in part, by chip maker Qualcomm, its largest holding and a major activist target for the firm. Jeffrey Ubben’s San Francisco-based ValueAct Capital Master Fund had fallen nearly 1 percent through September. Since then major holding Valeant has fallen 35 percent, while Microsoft, another top holding, is up about 25 percent. Nelson Peltz’s Trian Partners is barely in the black for the year after dropping about 3.6 percent this month through December 18. It is now up 2 percent in 2015.

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Meanwhile, two other high-profile firms that sometimes engage in activism are having a tough time this year. David Einhorn’s New York-based Greenlight Capital was down more than 20 percent through November. Daniel Loeb’s Third Point Offshore, managed by New York-based Third Point, was down 0.2 percent through November.