| Bill Ackman, Pershing Square Capital Management (Bloomberg) |
The best-performing hedge fund strategy in the third quarter of 2016 by far was shareholder activism. But a look at how some of the better-known funds performed during the quarter shows that behind the aggregate figure, individual fund performance was decidedly mixed.
Activist funds scoop up big stakes in public companies and then agitate for change, usually by angling for board seats, initiating proxy battles, urging mergers and spin-offs, and so on. The average activist fund tracked by hedge fund data company eVestment surged 4.87 percent for the period, boosting its gain for the year to 5.85 percent. This easily beat the average hedge fund, which gained 2.91 percent in the third quarter and 4.4 percent for the year.
Activists did especially well in August and September, the data research firm points out. But many investors were not around to see those gains. According to eVestment, so far this year a net $1.79 billion has flowed out of the strategy, compared with a more than $2 billion inflow in 2015. Investors yanked out $1.5 billion at the end of January, $505 million at the end of March, and more than $2.1 billion at the end of July, according to eVestment.
Of course, some investors had their reasons for redeeming from activist funds. Part of the reason for the outflow of assets from activists is that some of the individual funds have struggled.
Take Bill Ackman’s Pershing Square Capital Management, the biggest loser by far. Ackman’s firm’s publicly traded fund, Pershing Square Holdings, was down more than 18 percent through September and is now down 21.4 percent through October 11. It was hurt in part by its big — and losing — bet on Valeant Pharmaceuticals International.
Another high-profile activist firm that took a beating from Valeant is Jeff Ubben’s ValueAct Capital Management. Its flagship fund surged 6.3 percent in the third quarter, which helped the fund to cut its loss for the year to just 1.9 percent. Although its Valeant position lost money, ValueAct made money on oil services giant Baker Hughes, aircraft engine maker Rolls-Royce, and more recently, investment bank Morgan Stanley and Alliance Data Systems Corp., a provider of marketing services including private-label credit cards.
On the other hand, one of the better-performing large activists so far this year is Chris Hohn’s the Children’s Investment Fund, run by TCI Fund Management. It posted a 5.7 percent gain in the third quarter and is now up 6.8 percent for the year.
The fund’s performance this year has been driven by cable and broadband giant Charter Communications; media powerhouse Comcast; Spanish airport owner and operator Aena, whose stock surged about 80 percent in 2015; and Aurizon Holdings, an Australian rail freight company. Altogether, TCI Fund Management manages $12 billion.
Nelson Peltz’s Trian Partners, operated by Trian Fund Management, returned 3.2 percent through the end of September. Industrial food supplier Sysco Corp., Trian’s second-largest position, gained about 20 percent through the first three quarters. On the other hand, the fund was hurt by GE, its largest position. GE’s stock fell nearly 6 percent in the third quarter and nearly that amount for the first nine months.
Appearing on CNBC Wednesday, Peltz called GE a “good company” whose margins are growing. “GE has been a good performer since the announcement last year it is getting out of the credit business,” he said, adding, it has the “best set of industrial assets on the planet.”
Several smaller activists are among the best performers this year within the strategy.
For example, Tosca Assset Management’s Tosca Opportunity, managed by Martin Hughes, climbed 5.6 percent in the third quarter, boosting its gain for the year to 13.3 percent. Performance was led by esure Group, a UK auto insurer that announced the demerger of its price comparison company Gocompare.com. The fund also got a big boost from RhythmOne, an advertising-tech company which announced very strong growth. Tosca still holds positions in the two stocks. The strategy manages $1 billion.
James Mitarotonda’s Barington Companies Equity Partners, the main fund of Mitarotonda’s Barington Capital Group, returned 12.5 percent through September. However, the fund manages just a little more than $100 million.
Several activists have been furiously battling back from sharp earlier-year losses. For example, Richard (Mick) McGuire III’s Marcato International, operated out of McGuire’s firm, Marcato Capital Management, is flat for the year.
We reported earlier that Barry Rosenstein’s New York–based Jana Partners, his firm’s eponymous flagship fund, gained more than 5 percent for the third quarter, cutting its loss for the year to just 1.1 percent. Sachem Head Capital Management’s Sachem Head Offshore was up 0.5 percent through mid-September, while Corvex Management’s Corvex Master Fund was down less than 1 percent through August.
