In the time-honored battle between activist shareholders and corporate boardrooms, the activists have launched another volley as one hedge fund claims that activist tactics benefit companies in the long-term. The hedge fund is Ramius, a “global alternative investment firm” that claims in a recently-released white paper that hedge fund activism is particularly valuable in times of economic malaise.
Ramius, which controls $11 billion in assets, defines activism as “a strategy that is widely discussed yet characterized by misconceptions and incomplete understanding.” Their white paper details the recent history of activism, from a “cottage industry” to the trillion-dollar force it is today, while demonstrating the rising influence of hedge funds in the post-Enron era.
The white paper attempts to reverse the stereotype that hedge fund activists are only concerned with short-term company performance, citing two academic studies. The first study, “Hedge Fund Activism, Corporate Governance, and Firm Performance,” found that firms targeted by activists tended to outperform the market by 7 to 8 percent over four weeks before and after the activist campaign. This study also found that hostile activist actions tended towards better stock performance.
A second study, “Hedge Fund Activism,” determined that the mere threat of a proxy fight was often sufficient for the activist to achieve its goals. The study also showed that in the year following activist activity, companies had positive returns of 11 percent.
As the report concludes, “no matter what form the institutional investor chooses to express activism in their portfolios, the value proposition of activist strategies has clear attractions for the rational return-seeking investor.”