U.S. activist investors post strong gains as needling companies pays off

BOSTON (Reuters) - Activist investors who are shaking up Corporate America with calls for operational fixes, refreshed boards and even sales of a company are delivering their best returns in six years with double-digit gains for 2019 after big losses in 2018.

FILE PHOTO: William 'Bill' Ackman, CEO and Portfolio Manager of Pershing Square Capital Management, speaks during the Sohn Investment Conference in New York City, U.S., May 8, 2017. REUTERS/Brendan McDermid/File Photo

The surge in returns is energizing experienced corporate agitators as well as newcomers and may force more companies into costly battles with shareholders over their corporate future next year, managers, lawyers and bankers said.

Through the end of November, activist managers on average returned 13.09%, according to data from Hedge Fund Research, which tracks various investment strategies’ returns. Fueled by high double-digit returns at funds run by William Ackman, Barry Rosenstein and Glenn Welling among others, activists are handily outperforming all other types of hedge funds where the average fund returned 8.5% this year, HFR data shows.

The gains illustrate a sharp recovery from 2018 when the average activist lost 10.4%, in part because a late-year stock market tumble erased gains at many funds.

Hedge funds run by activist investors are traditionally reserved for institutional investors and wealthy private clients.

To be sure, activists are benefiting from this year's strong stock market gains where the Standard & Poor's 500 index .SPX has climbed 28.5% so far. But many added spice with demands for changes or by watching earlier prodding pay off.

“Many of the initiatives that were advocated for by our managers resulted in improved performance,” said Gregg Hymowitz, chief executive officer of EnTrust Global, a large investor with activist managers.

Through the middle of December, Ackman's Pershing Square Holdings portfolio gained 57%, lifted by investments including Chipotle Mexican Grill Inc CMG.N, where Ackman helped install a new chief executive officer last year.

Douglas Braunstein's Hudson Executive Capital gained 52% through the end of November, fueled by gains at Cardtronics Plc CATM.O which gave Braunstein a board seat last year.

Some investors returned with fresh demands directed at companies they had previously targeted. Glenn Welling's Engaged Capital, which is up 30% through November, came back to nutrition and weight loss company Medifast Inc MED.N while Jana Partners took a second run at restaurant chain Bloomin' Brands Inc BLMN.O, which may consider selling itself. Corvex Management is up nearly 20% through the end of November, months after its founder, Keith Meister, joined the board of MGM Resorts International MGM.N.

Representatives of the funds declined to comment.

In the United States alone, activists targeted 464 companies this year through mid-December, roughly the same number as last year, data from Activist Insight shows.

Next year, activists may perform even better, investors and managers said, noting there are plenty of inefficiencies to repair at smaller companies.

While fresh money many not chase this year’s strong returns as investors worry that a recession will hit at some point, investors said they are willing to fund specific campaigns in so-called special purpose vehicles.

“Activists are value investors, which are starting to become more in favor,” said Ken Squire, who runs 13D Monitor and the 13D Activist Fund. “Over the past 15 years, activists went from being frowned upon to being accepted and now respected.”

Reporting by Svea Herbst-Bayliss in Boston; Editing by Matthew Lewis