The gap between the highest and lowest returns of activist hedge fund managers so far this year is more than 23 percentage points, a range that institutional investors will have to get used to as they continue their activist investment spree.
Sources said the unique investment approach of activist hedge fund managers — whose raison d'etre is to persuade public companies to make operational or balance sheet changes to increase shareholder value — consistently produce a wider dispersion of returns than is typical among a small group of hedge fund managers.
Analysis by Chicago-based Mesirow Advanced Strategies Inc. found that the spread tracked by its hedge funds-of-funds research team averaged 25 percentage points per calendar year back to 2005, said Terra Fuller, vice president and head of hedged equity.
Pensions & Investments' comparison of year-to-date returns of eight of the largest activist hedge funds used by institutions showed a 23-percentage-point difference. For calendar year 2012, the difference was 34 percentage points; 2011, 24 percentage points; and 2010, 33 percentage points.
The best performing hedge fund in P&I's ranking was Trian Partners Ltd., managed by Trian Fund Management LP, which returned 24.3% year-to-date through Aug. 31. The worst activist hedge fund performer was Pershing Square International Ltd., managed by Pershing Square Capital Management LP, which scraped by with a 1.1% return year-to-date Sept. 13. (Activist hedge fund returns are difficult to come by and reporting dates tend to vary widely.)
“There always is a lot of dispersion in the returns of activist hedge funds because of their idiosyncratic investment styles,” said Ms. Fuller.
The idiosyncrasies arise from the corporate targets in which individual managers choose to take stakes and the degree to which each campaign for change is successful.
Well-publicized activist hedge fund campaigns, both collaborative and aggressive, that have been waged or still are ongoing this year include Pershing Square's large bets on J.C. Penney Co. Inc. and Herbalife Ltd.; JANA Partners LLC's entanglement with Canadian fertilizer giant Agrium Inc.; Third Point LLC's push for changes at Sony Corp.; and ValueAct Capital Management LP's engagement with Microsoft Corp.