U.S. Markets

Activist funds with fewer assets outperforming big name rivals

BOSTON (Reuters) - Several activist investor funds with a fraction of the assets of their bigger rivals are posting strong returns, as they win board seats and drive change at companies, an analysis of their performance shows.

The up-and-coming firms have been trouncing both the industry benchmark and their bigger competitors, delivering double-digit returns in 2017 to date.

In part, their outperformance has been due to policies of pushing the smallcap firms they invest in to perform better and to an insistence on directing policies from the boardroom.

For instance, Marcato Capital Management saw its main fund surge 7.2 percent in September, leaving it up 12.1 percent for the year to date, according to a performance update seen by Reuters.

Marcato won board seats at two of its portfolio companies - crane maker Terex and restaurant company Buffalo Wild Wings - and is seeking to replace all directors at footwear maker Deckers.

Terex has gained 43 percent this year and Deckers has climbed more than 50 percent since San Francisco-based Marcato unveiled its investment, fueling the hedge fund’s gains.

Founder Mick McGuire’s second portfolio, the Encore Fund, is performing even better, posting a 23.8 percent return this year.

Engaged Capital, which demanded drastic changes at natural products company Hain Celestial and expects to seat founder Glenn Welling on the board, has gained roughly 13 percent this year after climbing 1 percent last month.

Its performance has been driven in part by a 85 percent gain at Magnachip Semiconductor, where the hedge fund has seated two directors.

And Dan Plants’ Voce Capital, which had pressed for change at Air Methods Corp before the medical helicopter company sold itself to a private equity firm, boasts a 19.35 percent return for the year after gaining 4.78 percent in September.

Foglamp Capital, which focuses on companies that have been beaten down with a chance to recover, has gained 9.4 percent this year after slipping 2.5 percent in September.

According to Hedge Fund Research’s most recent numbers, the average activist fund has gained 4.38 percent this year, through to the end of August.

Nelson Peltz’ Trian Partners, which invests $14 billion, is posting single digit gains, and Bill Ackman’s $10 billion Pershing Square is nursing losses.

Reporting by Svea Herbst-Bayliss, Additional reporting by Lawrence Delevingne, Editing by Rosalba O’Brien