When the financial history books are written, 2014 could be characterized as the year of the aggressive activist hedge fund manager. Into the often aggressive and sometimes brutal fray comes a new service that allows interested parties to track the activist hedge funds short selling, providing the ability to monitor, benchmark and analyze their tactics.
Short selling generating alpha-based profitability
Activism has grown to new historic high levels on several levels. But most important, never before have activist hedge fund short-sellers generated so much alpha-based profitability. Considering the facts on a year over year basis bears this out.
The activists are generating nearly three times as much net profitability while the number of activist campaigns are increasing, according to data provided by the research web site Activist Shorts.
Activists fund managers’ short campaigns have enjoyed an average return of -17.3 percent on their targets in 2014, whereas companies targeted by activists in 2013 had an average campaign-length return of -4 percent, according to Activist Shorts Research. There are almost one third more activist initiatives in 2014 than 2013, with 86 vs. 67 activist campaigns year to date respectively.
Short selling web site allow users to track the action
[drizzle]The Activist Shorts web site, targeted towards a professional audience, allows users to track the action to a new level.
Subscribers to the web site can get inside the strategy and view campaigns and benchmark averaged activist performance or review campaigns in micro detail.
For instance, the much discussed activist short by Gotham Research in Quindell PLC (LON:QPP) (OTCMKTS:QUPPD), with a market cap at one time over $4 billion, can be identified as the young firm’s largest takedown to date. The web site chronicles the charges made, accounting fraud, and shows the returns to date and the resulting company actions, in this case the resignation of the CEO and a lawsuit in-between some insider stock buying.
Note that the (Gotham City campaign) is still halted and is expected to go to zero once unhalted, and same goes for FAB Universal, which is the subject of an Alfred Little and GeoInvesting campaign.
Further, if a pension fund wanted to analyze all campaigns of Greenlight Capital, for instance, they could build a spread sheet that include obvious items such as the returns since campaign inception, target company ticker and information. But the web site also allows for filtering based on the activists’ primary allegation, the short selling campaign tactics, details of how the campaign was announced, and the related target company tactics.
For instance, one notable Greenlight short-seller target was McGraw-Hill Companies. The campaign, launched September 08, 2009, back in the day of the less aggressive activist campaign, was announced on CNBC. During the campaign, which lasted about three years, the company bought back stock, enhanced its dividend, divested certain business units, replaced its chief financial officer, and attracted shareholders activists in JANA Partners and Ontario Teachers and another short-selling activist: Jim Chanos‘ Kynikos Associates. Shareholders rewarded the company, as its stock returned 221% since Greenlight’s campaign announcement.