Fund Activist Activity Rises While Assets Fall

Fund Activist Activity continues its 2016 momentum

2016 was a busy year for activists according to the Harvard Law School Forum shareholder study posted by Josh Black, Editor-in-Chief, Activist Insight. As markets around the world trended higher following Brexit and Trump’s election, activists continued to find targets with a surge in one-off campaigns, governance -related proposals and remuneration crackdowns. In total 758 companies around the world found themselves the targets of activists during the year, up 13% year-on-year. 104 companies from the S&P 500 were targets of activists.

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It was a great year for those activists seeking to improve corporate governance with 155 companies targeted worldwide, up 24% after three years of relatively flat activity.

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Only 58% of resolved demands initiated in 2016 were at least partially successful, with the rate of achievement rising with the focus level of the fund activist.

The other notable trend that stands out from the data is the strengthening of small-cap activism.

Specifically, according to the Harvard report, during 2016 companies with a market capitalization of less than $2 billion accounted for 78% of all activist targets, up from 72% in 2015 and 70% in 2014. However, the total value of activist funds globally fell from $194 billion in 2015 to $176 billion in 2016, which is still more than the 2014 figure but was the first recorded drop in five years.

Fund Activist Stats

This drop in assets matches a wider industry trend but does not correlate with activist fund performance last year. Indeed, according to the Financial Times which cites data from eVestment, activist hedge funds returned 10.43% during 2016 while hedge funds across all strategies returned 5.34%. Even though the performance recorded during the year was positive, more than half of the hedge funds that manage more than $1 billion saw their assets contract last year. According to the twice-annual Billion Dollar Club report, the largest 309 hedge funds oversaw assets of $1.87 trillion at the beginning of January 2017, marking a 0.19% contraction from a year earlier in January 2016. The actual cash withdrawal figure is likely to be higher considering the industry’s average 5.34% return for the year. Activist hedge funds, for the most part, have bucked this trend.

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According to Eurekahedge, activist hedge funds have outperformed their peers in every year except for 2008, 2011 and 2015. In 2015 funds posted their first negative annual returns in five years, down 0.34%. This in proved performance has come with increased volatility however with the maximum drawdown of activist hedge funds more than double that of global hedge funds. Activist hedge funds posted maximum drawdown of close to 30%, while global hedge funds posted maximum drawdown of close to 13%. Meanwhile, volatility levels were almost twice that of global hedge funds at 9.17% compared to 4.99%.

See the full report here