Key Takeaways
- • Hedge fund "wolf packs", coordinated groups of activist investors, are returning to activism, with at least three hedge funds (Trian Partners, Third Point and Marcato) filing 13D notices on Sotheby's.
- • Total hedge fund assets reached $1.9 trillion in 2013, the industry's highest level since its 2007 peak of more than $2.1 trillion, according to Barclay Hedge.
- • Apple raised its buyback program to $60 billion this year under pressure from David Einhorn, and Carl Icahn met CEO Tim Cook to push for a $150 billion buyback.
- • Kerrisdale Capital Management (4 percent stake) plans to nominate a new slate of directors at Morgans Hotel Group for 2014, and 40 North Management followed with its own 13D filing.
- • Securities lawyer Tom Briggs and governance expert Charles Elson link the resurgence to lofty equity valuations, record-low interest rates and the strategic advantage of collective influence.
Summary
Hedge fund "wolf packs", a controversial phenomenon that last drew attention in 2006 ahead of the financial crisis, are re-emerging, most visibly in activist investing, according to the New York Post. In these campaigns, activists push for mergers, asset sales and other changes that could lift a company's share price.
Sotheby's is the clearest current example. Months after an investment by Nelson Peltz's Trian Partners, Dan Loeb's Third Point and Mick McGuire's Marcato each filed 13D notices on the auction house. Such filings signal that an investor holding at least 5 percent of a company may push for change. Tom Briggs, a securities lawyer who wrote a 2007 white paper on activist wolf packs, said "it's not surprising that several wolves are chasing the weakest bison in the herd."
Briggs cited the same conditions that drove the 2007 episode: a "limited range of [investment] opportunities" amid lofty stock prices and record-low interest rates. The Dow Jones Industrial Average closed above 15,000 for the first time in May and was up 16 percent year to date through Tuesday. By comparison, it first closed above 14,000 in October 2007, when it was up 14 percent. Investors seeking more than fixed-income returns have poured cash into equities.
Hedge fund capital is also growing. Total industry assets hit $1.9 trillion this year, according to tracker Barclay Hedge, below the $2.1 trillion peak reached in 2007. The Post noted that more money is chasing fewer opportunities.
Apple is another focus. The iPhone maker raised its dividend and expanded its buyback program to $60 billion this year after investors led by David Einhorn pressed it to return cash to shareholders. Carl Icahn met Apple CEO Tim Cook on Monday to push for a $150 billion buyback.
Morgans Hotel Group, owner of the Delano in Miami, is also drawing activist interest because of its potential as an acquisition target. Sahm Adrangi of Kerrisdale Capital Management, which holds a 4 percent stake, said last month he plans to nominate a new slate of directors for 2014, citing concerns that the current board is not interested in a sale. 40 North Management followed with a 13D filing a few weeks later. Corporate governance expert Charles Elson summarized the logic: "It's safety in numbers. The more numbers you have, the more influence you have."
Sotheby's is the clearest current example. Months after an investment by Nelson Peltz's Trian Partners, Dan Loeb's Third Point and Mick McGuire's Marcato each filed 13D notices on the auction house. Such filings signal that an investor holding at least 5 percent of a company may push for change. Tom Briggs, a securities lawyer who wrote a 2007 white paper on activist wolf packs, said "it's not surprising that several wolves are chasing the weakest bison in the herd."
Briggs cited the same conditions that drove the 2007 episode: a "limited range of [investment] opportunities" amid lofty stock prices and record-low interest rates. The Dow Jones Industrial Average closed above 15,000 for the first time in May and was up 16 percent year to date through Tuesday. By comparison, it first closed above 14,000 in October 2007, when it was up 14 percent. Investors seeking more than fixed-income returns have poured cash into equities.
Hedge fund capital is also growing. Total industry assets hit $1.9 trillion this year, according to tracker Barclay Hedge, below the $2.1 trillion peak reached in 2007. The Post noted that more money is chasing fewer opportunities.
Apple is another focus. The iPhone maker raised its dividend and expanded its buyback program to $60 billion this year after investors led by David Einhorn pressed it to return cash to shareholders. Carl Icahn met Apple CEO Tim Cook on Monday to push for a $150 billion buyback.
Morgans Hotel Group, owner of the Delano in Miami, is also drawing activist interest because of its potential as an acquisition target. Sahm Adrangi of Kerrisdale Capital Management, which holds a 4 percent stake, said last month he plans to nominate a new slate of directors for 2014, citing concerns that the current board is not interested in a sale. 40 North Management followed with a 13D filing a few weeks later. Corporate governance expert Charles Elson summarized the logic: "It's safety in numbers. The more numbers you have, the more influence you have."
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