Activist hedge funds continue to find ways to use public M&A transactions as a tool to generate returns for their investors. As a result, market participants need to consider potential activist strategies in determining how to structure, announce and execute their deals.
Activists have used three principal strategies to extract additional value from public M&A transactions. The first strategy involves directly challenging the announced deal to extract a higher price. Defeat the merger, and/or pursue an alternative transaction or stand-alone strategy. The second strategy involves attempting to use statutory appraisal rights to create value for the activist. And the third strategy involves making an unsolicited offer to acquire a target. Either independently or in conjunction with a strategic acquirer, to put the target in play. In this article, we discuss examples of recent uses of these strategies by activist investors and point out some general implications of these examples for transaction planners.
Activist Hedge Funds
First, note that there aren’t that many “pure play” activist hedge funds.
Some value-oriented funds occasionally launch public campaigns, but that doesn’t mean they’re “activists” in the traditional sense.
Some of the best-known activist hedge funds in the U.S. include Elliott Management, Third Point Partners, Value Act Capital, Trian Partners, JANA Partners, and Starboard Value.
People will sometimes put firms like Pershing Square in this category due to some high-profile activist campaigns they’ve led.
And while Carl Icahn may be the highest-profile activist investor of all time. He hasn’t managed outside money since 2011, so Icahn Enterprises is not technically a hedge fund.
Other names include Angora Advisors, Barington Capital, Corvex Management, Macellum Capital, Mudrick Capital, Sachem Head, Soroban Capital, and Engine No. 1 (effectively a BlackRock entity; it gained fame via its ExxonMobil campaign).
In Europe, the best-known activist fund is probably Cevian. Which focuses on the Nordic and DACH (Germany, Austria, and Switzerland) regions.
Activist Hedge Fund Careers, and Compensation
Hedge fund compensation is linked to funding size, performance, and individual performance/contributions, so it’s impossible to say if the “average” activist hedge fund employee earns more or less than the average at other fund types.
I’ve seen some Sum Zero compensation reports from previous years that break out median compensation by strategy. But they’re not that useful due to big fluctuations from year to year (“activist” is in the mid-to-lower end of the range for compensation. If you’re curious, but I wouldn’t read much into it).
That said, it is fair to say the following about activist hedge funds:
Promotion: It’s arguably easier for high-performing Analysts to win promotions to Portfolio managers and eventually Partners because they tend to with everything in the investment process. You’re less likely to be “siloed” than in a strategy like a merger arbitrage.
Hours: The hours are often more “variable” than other types of hedge funds because you could easily get involved in an active investment that starts consuming your attention 24/7 if, for example, the company announces plans for a spin-off, break-up, or sale of the entire company. It’s closer to the IB/PE cycle, where hours fluctuate significantly based on deal activity.
Headcount: The hours also tend to be longer because many of these firms have extremely lean teams despite high AUM. I don’t think anyone has data on the average AUM per Employee broken out by hedge fund strategy. But I would not be surprised to see higher-than-average figures for activist funds.
Conclusion
Since you probably worked in investment banking, and private equity. Or both before moving into an activist hedge fund, you could also leave and return to one of them.
If you’ve somehow into an activist fund without doing one of those first. It will be much harder to make this move.
Yes, you do work on “deals,” but it’s a far less comprehensive process. And you’re not responsible for executing all the steps (or even advising on them).
Your main goal is to persuade other shareholders. This means you spend more time on presentations and outreach than on reviewing the fine print on page 157 of the merger agreement.
Since activist investing overlaps with other strategies such as long/short equity, and credit. And even merger arbitrage, you could potentially move into a fund or group in one of these areas.