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Activist Hedge Funds Enjoy Impressive Performance amid Recent Rise in Exposure – March 2014

by Samuel McKenzie

  • 12 Mar 2014
  • HF

Nowadays, the dealings of activist hedge funds are featured significantly in the financial industry front pages. For example, ongoing battles such as those between Carl Icahn and eBay, Daniel Loeb’s Third Point and Sotheby’s, and William Ackman and Herbalife, routinely appear in the public domain. Preqin tracks 405 activist hedge funds and data from Preqin’s Hedge Fund Analyst online service shows that the activist space is not suffering from the recent increase in exposure.

According to Preqin data, activist hedge funds boast combined assets under management of approximately $91.4bn. Elliott Management’s Elliott International Ltd. stands as the largest fund, with around $15.6bn in assets under management, followed by Sweden-based Cevian Capital II. The Europe-focused, event driven Cevian fund closed to new investment in July 2013 having reached its capacity of $10bn.

Recent returns have been impressive for activists with Preqin data showing an average return of 17.52% in 2013, comfortably outperforming the overall hedge fund benchmark of 11.17%. Standout performers include Taiyo Fund, which uses a “friendly activist” approach to invest in Japanese equities. The Kirkland, Washington-based fund outperformed equity markets by a significant margin. This performance could be attributed, in part, to the influence of Japanese economic stimulus packages introduced by Prime Minister Shinzo Abe dubbed ‘Abenomics’. Moving forward into 2014, things continue to look promising, as activist hedge funds have enjoyed back to back positive months at the start of the year, with average returns in January and February totalling 2.06% - a good indication of another strong year ahead.

Data from Preqin’s Hedge Fund Investor Profiles online service shows that there are currently 153 investors with a preference for activist funds. Preqin data also shows that in September 2013 there were three new fund of hedge funds launches all targeting investment opportunities in activist hedge funds. Permal Activist Fund and EnTrust Capital’s Global Activist Fund (available in both onshore and offshore versions) launched with the aim of specifically offering exposure to activist hedge funds. These new ventures almost certainly spotted an opportunity to capitalize on the recent strong performance of activist funds and were no doubt encouraged by the increase in the number of activist fund launches over recent years. According to Preqin data, 27 activist hedge funds began life in 2013, compared with 12 and 11 in 2012 and 2011 respectively.

With new entrants into the activist space and activist hedge funds performing well in 2013, this appears to be a strategy to look out for in 2014.

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