Can we finally talk about the dearth of new ideas in activism?
Like redemptions and failing to beat the S&P 500 Index, this is something activists generally share with the rest of hedge funds. The Sohn Foundation conference on Monday, where both Bill Ackman and Clifton Robbins pitched old ideas and many other non-activist funds underwhelmed, served to reinforce this impression.
I ran the numbers from Activist Insight and found we had recorded 85 new investments from dedicated activists (primary and partial focus in our internal jargon) this year. By our numbers, 2014 was the high point for activist investments, with 580 new positions. That dropped to 502 in 2015 and rose slightly to 528 in 2016. Now 2017’s numbers will be significantly lower until we process quarterly 13F filings, but it will be worth watching the first batch over the next few days to get a sense of how activists really feel about markets in the Trump era.
Not included in those numbers is Pershing Square. After disappointing some at Sohn on Monday by picking Howard Hughes Corp – a seven-year-old investment where he is chairman – Bill Ackman told investors in his Pershing Square Holdings fund that of two investments he has made in the last four months, one has risen too sharply for him to be comfortable pushing his stake over 5% and the other had “business development issues” that made Pershing Square sell out, though it is monitoring for a potential return.
Two other ideas are in the works, Ackman said, but those two concerns – valuation and disruption in established businesses – are surely putting a lid on some activist ideas that might otherwise be acted upon.
Digging a little deeper into the new investments, Blue Harbour Group and Trian Partners each have one new position, while Starboard Value, Carl Icahn, ValueAct Capital Partners and Jana Partners have two. ValueAct is also said to be returning capital to its investors, after CEO Jeff Ubben told a Reuters Newsmakers panel earlier this year that much of the market was overvalued. All of the larger activists are notably cagier about discussing the changes they want to see too. The real action – and it’s a good year for fights – is with few exceptions in the middle of the market.
Only Elliott Management, which reportedly raised $5 billion last week and has seven new investments, is behaving like activist investing might go out of fashion, rather than as if it already had.
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Whole Foods Market responded to an intimidating declaration of interest by Jana Partners earlier this week by offering wholesale change. In a Wednesday announcement, the company named five new directors with a bunch of retail experience, a new chairman and chief financial officer. The company will also cut costs more deeply, increase its dividend and share repurchases, and extend a loyalty scheme across its stores. Jana Partners reportedly declined to participate in the reshuffle, preparing to let management take the lead and retain freedom from the restrictions of an inevitable standstill agreement.
What’s interesting about the changes is that the market has responded – up 1.7% on a Wall Street Journal report some hours before the announcement, then straight back down, up 5% the next morning on the meat, then trending down. Ultimately, the test will be the next couple of quarters but if like me you’ve tried a hot dog from the Bryant Park Whole Foods, you’ll know there is a long way to go for this company.
Article by Activist Insight