Investor activism is here to stay, but it will be spearheaded by hedge funds rather than pension investors, according to a survey from law firm Schulte Roth & Zabel (SRZ).
The study found a staggering 98% of US activist and corporate respondents said they expect activism to increase over the next 12 to 24 months, 48% of whom said the bump would be substantial.
“As long as activists can continue to deliver alpha returns, there is no reason to expect this trend to recede,” said Marc Weingarten and David Rosewater, co-heads of SRZ’s activism practice.
“If it takes less time for the companies to respond to activist demands with appropriate changes… logically, holding periods would fall in response.”—David Rosewater, SRZAbout 60% of respondents said hedge funds would lead activist campaigns over the next 12 months while only 10% voted pension funds would see an increase.
In the US, activist shareholders said they were mainly driven by financial performance, acquisition announcements, and management/board changes. Some 70% stated their preference for passive approach such as open dialogues and negotiations with management and shareholder resolutions in achieving their goals.
Unlike high profile activist operations the likes of Carl Icahn with eBay and Dan Loeb with auction house Sotheby’s, only 4% said they believed publicity campaigns were effective.
SRZ’s study also found investment holding periods have shortened since last year, possibly due to activists’ rising success at a faster pace.
According to the survey, only 36% of US activists said they have an average holding period of at least 12 months, significantly lower than the 60% recorded in 2013. About 50% of respondents said they hold investments for an average of six to 12 months.
“If it takes less time for the companies to respond to activist demands with appropriate changes and those changes then are reflected more quickly in the stock price, logically, holding periods would fall in response,” Rosewater said.
But a surge in activism popularity may come at a cost to profits. The survey found investors lowered their target returns on activist investments significantly since last year.
Eighty percent of respondents said they expected returns of 10% to 20% while only 20% said they projected a 20% to 30% yield. Two years ago, the results were roughly split down the middle.
More than 50% of this year’s respondents also said they expect “overcrowding” in activist activity that would limit the number of opportunities.
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