Advocating for investors looking for unique ideas since 2015
Headquartered in the Midwest, we cater to creative clients from coast to coast. Our company specializes in all activist investing and hedge fund matters, offering idea generation and research for investors looking for special situations, event-driven ideas and investments with catalysts.
Whether you’re a small asset manager, retail investor or institutional firm, we use the research budgets of activist investors and hedge funds to find unique investments ideas in the stock market.
Get in touch with us to get more insight into what we do and how we can help, or use the signup form at the bottom of this page to get a free trial to our premium service.
Areas of Practice
Why follow activist investors
Activists engage different types of companies, across different industries, and of various capitalization sizes: from small-cap to large and even mega-cap businesses. The majority of companies that become targets of activists are considered value stocks. For example, it is rare to see activists initiate investments in high-growth companies.
The most important role activist funds play is the promotion of shareholders’ interests. They often propose strategic, operational, and financial changes at companies. An academic study “Hedge Fund Activism, Corporate Governance, and Firm Performance” by Alon Brav, Wei Jiang, Frank Portnoy and Randall Thomas analyzed a large sample of activist campaigns between 2001 and 2006. They found that activist hedge funds attain success or partial success in two thirds of the cases.
“Hedge Fund Investor Activism and Takeovers,” an academic study by Robin Greenwood and Michael Schor in 2007, determined that firms targeted by activists are more likely to be acquired than other similar firms. An interesting observation the study makes is that although activist investors usually have rather long investment horizons, hedge funds’ objectives are to earn returns in as short a period as possible. Therefore, they are especially interested in finding merger and acquisition opportunities for the target company.
Activist investor performance
Tracking the performance of activist investors is difficult, but many academic studies point to outperformance. For example, IRRC Institute’s 2009 study of 120 companies – in which activist investors gained board seats during 2005 to 2008 – found that total shareholder returns were 19.1% to 16.6% higher than peers during a one-year period beginning from the proxy contest. Morgan Joseph & Co. tracked 94 campaigns over an 18-month period during 2005 to 2006, and found that excess returns for these stocks were 16% in the year following the first announcement of an activist shareholder’s involvement. Other studies also report similarly positive results.
putting our experience and expertise to work
Activist investors and hedge funds have different strategies and time horizons, so achieving good returns might not be as easy as just mimicking them. A clear understanding of the valuation thesis is important, instead of just relying on activists who “did their homework”.
We pay attention to the type of an activist campaign. Campaigns which are more corporate-governance oriented may be an indication that the company is not managed well and that management might be corrupt and non-cooperative. In these types of cases, it might take a long time to fight management, gain board seats, and eventually to enact the necessary reforms. On the other hand, campaigns that call on companies to sell some non-core assets, distribute extra cash, or spin-off part of the business and focus on the performance of the main division, do not necessarily imply that management is corrupt. It is more likely that management will cooperate, and the campaign will unlock value for shareholders.
Leveraging hedge funds and activist investors research Budgets
Activist investors and hedge funds still have significant assets under management. The stakes that they acquire represent both large amounts of money and often are large portfolio positions. In such situation fund managers’ own reputation is at stake, and the level of responsibility they assume when making such investments is much higher than, for example, a mutual fund manager who manages a very diversified portfolio. Activist investors would not be able to do this if they did not conduct comprehensive research and analysis of the target company. Obviously, the resources they invest into this task are significant and are not typically available to an individual investor or even an institution.
Where we focus
Event driven ideas. This is a strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event.
Special situations. A special situation refers to particular circumstances involving a security or stock that compels investors to invest based on the special situation, rather than the underlying fundamentals.
Stocks and investments with a catalyst to unlock value. Catalysts are revelations or events that propels the price of a stock dramatically up or down.
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