Depending on which side you're on — hedge fund investor or hedge fund target — the success rate of activist hedge funds might inspire thrills or chills.
A new analysis of 94 campaigns waged by 29 activist hedge fund managers between January 2004 and March 2006 showed the managers have been remarkably successful in getting what they want. For example, activist hedge fund managers who demanded a management change by the companies they targeted were successful 75% of the time, according to a white paper prepared by the shareholder activist group of investment bank Morgan Joseph & Co. Inc., New York.
The paper, "Management in an Era of Shareholder Activism," also reported a 70% success rate for hedge funds that sought a presence on a company's board. Their success rates on other issues: 63% made management drop defensive takeover mechanisms; 55% forced a company sale; 50% gained a special stock dividend; 47% effected a share repurchase; and 44% managed to block a merger or acquisition bid.
"We undertook the study because activism has the potential to affect the course of hundreds of companies over the next several years. However, while today's activists share the same DNA as corporate raiders from the 1980s, their approach differs in that they attempt to force changes without buying the company outright," S. Randy Lampert, a Morgan Joseph managing director and one of the report's authors, said in a statement.