While most long-short and macro managers lost money or barely broke even in the first quarter, one group of hedge fund firms posted decent results for that tumultuous period: the activists.
Most of them not only made money, they outperformed other managers. One major reason is that they avoided the speculative, hard-charging, high price-earnings momentum stocks in the technology, Internet, media and biotechnology sectors. Instead, the activists, almost by definition, gravitated to underperformers or those they believe have more value than most investors have recognized.
In most cases, activists run very concentrated portfolios, except for perhaps Daniel Loeb’s Third Point, which is more like a multistrategy fund with an activist component that attracts most of the attention. We noted earlier that the New York hedge fund firm rose 0.8 percent in March, bringing its gains for the first quarter to 3.1 percent. This was nearly double the 1.7 percent gain for the Standard & Poor’s 500 index in the first quarter.
We also earlier reported that William Ackman’s Pershing Square Capital Management surged 10.7 percent in the first quarter even though it lost more than 1 percent in March.
Another activist that did well in the first quarter was Jeffrey Ubben’s ValueAct Capital Partners, rising 3.73 percent for the three-month period. The San Francisco–based hedge fund, which held just 12 stocks at the end of December, enjoyed positive contributions from one of its bigger positions — Microsoft — which the hedge fund initially reported owning roughly a year ago; it was up nearly 10 percent for the period. Longtime holding Valeant Pharmaceuticals International rose more than 12 percent, and Adobe Systems was up nearly 10 percent.
Ubben, who toiled in virtual obscurity for many years despite being among the better-performing hedge fund managers — he was up 29.5 percent in 2013 — is attracting more attention of late. His firm, ValueAct Capital, now manages more than $14 billion, nearly double the $7.5 billion it managed two years ago and nearly triple the $5.2 billion at the end of 2001.
Nelson Peltz’s Trian Partners didn’t fare as well as some of the other activists, but it was still solidly in the black, gaining 1.33 percent for the quarter. Trian typically invests in seven to 10 mid- to large-capitalization public companies it deems to be underperforming or undermanaged. Last year, when it had ten core positions, the New York hedge fund firm was up 40 percent, making it the top-performing activist investor.
In the first quarter, Ingersoll Rand, its third-largest holding, lost 7 percent. Ingersall Rand was the hedge fund firm’s second-best performer in 2013. Mondelez International, its largest position, shed 2 percent. On the other hand, Legg Mason was up nearly 13 percent, while the Wendy’s Co., last year’s top performer, rose another 4.6 percent or so in the first quarter.
We also earlier reported that Barry Rosenstein’s Jana Partners, which does not exclusively engage in activism, gained 1.7 percent in the first quarter despite losing 1.5 percent in March.
Not all activists made money last month. Richard McGuire III’s Marcato Capital Management lost 1.77 percent, according to the HSBC database. McGuire, a Pershing Square alum, founded San Francisco–based Marcato in 2010. At year-end it had $2.6 billion scattered among 14 different stocks.
It is actually stunning that Marcato lost money in the first quarter, given that during that period its biggest holding, Lear Corp., rose 3.4 percent; its No. 2 holding, United Rentals, surged 19 percent; while NCR Corp., its third-largest position, jumped 7.5 percent; Macquarie Infrastructure Co., its fifth-largest holding, gained 5 percent; and American Realty Capital Properties rose about 9 percent.
However, Marcato’s high-profile activist position in Sotheby’s lost more than 18 percent for the quarter, Vail Resorts lost 7.6 percent and Brookfield Residential Properties, a smaller position in the portfolio, shed more than 13 percent.
We earlier reported that David Einhorn’s Greenlight Capital lost money in the first quarter. Two of his funds — Greenlight Capital and Greenlight Capital Qualified — dropped 1.1 percent, while Greenlight Capital Offshore fell 1.6 percent in the period.
