AIMA: Activist Assets Up 269% Since 2009, 4,344% since 2001

Feb 25 2015 | 12:53pm ET

If you’ve been getting the feeling that activist investors have become more prevalent lately, you’re right; activism as an investment strategy has become very popular, new data from the Alternative Investment Management Association (AIMA) shows.

Assets managed by activist hedge funds have risen 269% in the five years through 2014, according to a new paper published by AIMA. Even so, that’s only 4% of the roughly $2.8 trillion in assets under management by the hedge fund industry as a whole. Globally, the paper defined the activist hedge fund sector as including 165 firms managing an aggregate total of around $120 billion in assets through the end of last year.

The growth is even more impressive when measured since 2001. Since then, assets managed by activist hedge funds have risen a whopping 4,344%, according to the data. AIMA’s research relied on information from a variety of sources, including Hedge Fund Research (HFR) and law firm Simmons & Simmons.

Unsurprisingly, performance has been the driving factor. The research showed that annualized returns for HFR’s proprietary activist index over three- and five-year periods were 13.9% and 7.8%, respectively, compared to 6.1% and 4.5% for HFR’s broad industry index over the same periods.

Activist hedge funds enjoy a slightly different position than other alternative asset managers, however. Unlike many other hedge funds, activists often trumpet their involvement in a company and make very public pronouncements about the changes they would like to see. 

It’s a cardinal difference. Traditional long-only funds buy a stock and wait for the market to agree with the value they see, whereas activists agitate for new management, board seats, spinoffs, buybacks and mergers that could unlock the incremental value they see.

Meanwhile, activists have been successful often enough that investors often discount their involvement even before any changes are actually made. At this point, just the news that a high profile activist, such as Bill Ackman from Pershing Square or Nelson Peltz of Trian Fund Management, has taken a position in a company can result in a swift jump in the price.

It can be a contentious exercise, but it is often profitable. The paper finds found that on balance, the engagement of an activist hedge fund was positively correlated with improving stock price, better operating performance, and greater corporate governance of target companies.

The paper, “Unlocking Value: The Role of Activist Alternative Investment Managers,” is available from AIMA.

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