Hedge fund activists – doing what works

The best defense against “activist” shareholders going into battle against management is prevention: taking actions on management’s own initiative to realize shareholder value (e.g., cutting costs, making better use of the balance sheet, or confronting difficult decisions in leadership). Activists will keep hectoring companies they think are in need of change because, well, it’s a good investment strategy: 

Activism is become increasingly popular as an investment strategy among hedge funds for one main reason – it works. According to our research at 13D Monitor, the average return for more than 200 material activist campaigns that were completed during the past two years was 18.55 percent, nearly double the average return of 9.49 percent for the Standard & Poor’s 500 stock index for the same time periods.

– Kenneth Squire, founder of 13D Monitor,
“Not Your Father’s Activist,” Alpha, May 2008 

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