Are activist investors a force for good that keeps management and boards honest? Or are they simply quick buck artists intent on creating short-term value at the expense of building long-term sustainable companies?
Much like today’s most notorious activist investors, Warren Buffett made a name for himself by identifying market inefficiencies that could be exploited for the benefit of his investors and public shareholders. But unlike the corporate raiders of the 1980s, Buffett wasn’t out to tear companies down. In fact, he wanted to help build them up.
When compared to the hedge fund industry at large, activist investors have garnered a disproportionate share of the headlines this year, and for good reason: they’ve been busy — launching 148 activist campaigns in the first half of 2014 alone — and they continue to outperform their hedge fund peers.
Thanks to a bull market and strong relative returns, assets under management for activist investors have swelled — tripling in just the last five years — allowing these high profile fund managers to launch more campaigns and take on bigger companies.
Oaktree Capital’s founder and chairman Howard Marks publishes periodic memos that are widely considered “must reads” for those in the investment industry, and his latest missive should be no exception. In ” READ MORE ›
In a recent speech, Federal Reserve Bank of Dallas president Richard Fisher aptly remarked, “Stock market metrics such as price to projected forward earnings, price-to-sales ratios and market capitalization as a percentage of GDP are at eye-popping levels not seen since the dot-com boom of the late 1990s.”
Activist investors have significantly raised their profiles in recent years. According to Activist Insight, there were 237 activist campaigns launched in 2013, up from less than 30 in 2000. And while activists used to fly mostly under the radar, many have now embraced new media platforms as a way to make their cases heard.
Goldman Sachs recently released its “S&P 500 Beige Book,” a quarterly survey of corporate conference calls which similarly collects “anecdotal evidence of fundamental and thematic trends” from which they highlight major themes.
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