Activist investors post strong returns on board campaigns in first quarter By Reuters

© Reuters. FILE PHOTO: FILE PHOTO: A sign marks a Kohl’s store in Medford

By Svea Herbst-Bayliss

BOSTON (Reuters) – Activist investors have outperformed their peers and the market in general this year by pushing for board changes rather than dramatic revisions, breaks or mergers, according to performance data and industry sources.

The average activist hedge fund returned 8.76% in the first quarter, ahead of the 6% gain in the hedge fund industry as a whole and a 5.8% rise in the stock index, according to the data from Hedge Fund Research.

Branded companies like Third Point (NYSE 🙂 LLC and Engaged Capital, as well as smaller players like Ancora Alternatives and new entrants including Honest Capital LLC, did even better, posting double-digit gains, said investors familiar with the numbers.

A year-long rally in asset prices has made it harder to find hidden gems, said Glenn Welling, chief investment officer of Engaged Capital. Even so, the company, which has $ 1.5 billion under management, is still looking for companies whose management teams can do more to increase sales or reduce costs, he said.

“We continue to see opportunities in the small and mid-cap universe in under-managed companies that need a catalyst for change,” said Welling, whose company posted a 22% gain over the course of the year. first trimester.

Activists are trying to generate supreme returns by agitating for change with a capital “C”. Sometimes they work quietly with boards and management teams to install new leaders or orchestrate new business plans, as they have been doing lately, but they are best known for glowing presentations that accuse companies of missteps or show how they can generate more profit for shareholders by reducing costs, merging with a competitor or spinning off companies.

In 2020, campaigners have gone to great lengths to let businesses navigate the coronavirus pandemic. In the first few months of 2021, however, prominent investors targeted Kohl’s Corp (NYSE :), FirstEnergy Corp (NYSE :), and Elanco Animal Health (NYSE :).

Retailer Kohl’s, which was publicly targeted in March and then settled for two board seats earlier this month, has seen its shares climb 27% in the past three months.

Two of Kohl’s activists are among those with above-average returns: James Chadwick’s Ancora climbed 11%, while Legion Partners, led by Chris Kiper and Ted White, gained 15.6%, according to the investors of their funds. Kurt Wolf, including Hestia Capital Partners, lobbied for a seat on the board GameStop Corp (NYSE 🙂 a year ago, posted a 223.7% gain in the first quarter.

The first quarter performance was also remarkable at Shawn Badlani’s Honest Capital, which posted an increase of 11.2%; Daniel Loeb’s third point, who won 11%; and William Ackman’s Pershing Square Capital Management, which rose 7.2%.

In total, activist investors demanded changes at 169 US-based companies in the first quarter, up from 178 companies in the first three months of 2020 at the start of the pandemic, according to data from Insightia.

About 41% of their 2021 campaigns were focused on paintings, up from 37% a year ago. Only 7% of them have pushed for mergers or breakups, up from 12% a year ago.

It’s still early days, but activist hedge funds are on track to do better than last year, as they lagged their peers and stuck with staggering stock gains.

If the economy recovers from the pandemic as expected, management teams will have fewer excuses for below-par performance, said Lawrence Elbaum, co-director of shareholder activism practice at law firm Vinson & Elkins.

“2021 shouldn’t give boards a false sense of security going forward,” he said.