This fund run by a SAC Capital alum bought restaurant stocks amid the pandemic
Prentice Capital Management was up 6.6% for the first four months of the year, compared to the S&P 500's 9.3% decline and the Russell 2000's 21.1% decline. The HFRX Equity Hedge Index was down 9.4% for the quarter. Q1 2020 hedge fund letters, conferences and more Gross and net exposures In his first-quarter letter to […]
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Nelson Peltz, who runs the activist hedge fund Trian Partners, doesn’t consider himself an activist investor. Rather, he considers himself a really good guy when it comes to business. The billionaire activist investor has said before, “We [activist investors] are accused of being short term investors. But the average length of stay in an investment is five years. At Fidelity it’s 18 months.”
Activist Investors As Business Managers
Pletz also calls what Trian does Business Management 101, noting, “We’re trying to figure out how we can get sales up and put a lid on expenses.”
Case in point, the $3 billion of excess overhead at chemical giant DuPont (NYSE: DD), where he lost a proxy battle to get four seats on DuPont’s board in May 2015. He describes his relationship with DuPont as a win. DuPont CEO Ellen Kullman resigned in October, and Peltz is a fan of new CEO Ed Breen.
Then there’s Peltz takedown of General Electric (NYSE: GE), where talks began eight years ago, at a difficult time for GE. Peltz noting, “They were not looking for new directors in 2008. They were looking for oxygen … We told them it was time to move on from the credit business. GE couldn’t compete with credit hedge funds where guys were making $30 million to $40 million a year.” GE decided to unload the lending business in 2015.
Trian ponied up and invested $2.5 billion in GE between May and October 2015, about a 1% stake. So far, it’s proven to be a good investment. “It’s the first time the stock hit $30 in a dozen years .. It was validation capital, as opposed to activist capital” said Peltz. The $2.5 billion is a significant bet for Trian, which has more than $10 billion of assets under management.
The New Age Activist Investor
For decades there’s been a big difference between ownership and management, where the typical shareholder hasn’t owned enough stock or had the expertise to make demands. Most owners remain passive, only having the option to sell if they disagree.
But times are a changin’ as shareholders get bigger and institutional ownership becomes more concentrated. Plus, many institutions have educated themselves on industry dynamics and corporate governance. They are increasingly aligning themselves with activist investors, and the cries over short-termism in activism is quieting, at least among institutional investors. However, politicians still haven’t opened their eyes, still believing in the notion of short-termism and the idea of lost jobs and lower pay. The big issue isn’t short-termism among activist investors, but management. Shareholders being more involved is a win-win for the markets and smaller shareholders. As Peltz notes, a more informed and engaged shareholder will lead to long-term growth and performance, being a positive for shareholders, management, employees and customers.
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