Thursday, 25 August 2016
Last updated 10 hours ago
Jun 5 2014 | 10:01am ET
Activism is apparently a growth industry, according to the latest figures from Preqin.
Last year saw the launch of 28 activist hedge funds—more than double the 12- fund total in 2012, and the 11 funds launched in 2011. In fact, the total was the highest since 2007.
Activist funds outperformed last year too, returning an average of 11.82% in 2013 compared to 7.88% for the broader hedge fund industry. That's also true on an annualized basis over the past five years—activist hedge funds have returned an average of 12.73% versus 11.74% for hedge funds overall.
But the news is not all rosy: activism is associated with higher volatility—8-14% compared to an industry average of 5-10% over the past five years. This means that risk-adjusted returns for activist hedge funds are lower than the industry average. The three-year Sharpe ratio (risk free rate = 2%) as of April 30, 2014 was 0.52 for activists compared to 0.77 for hedge funds overall.
In regional terms, North America is clearly the center of the activist universe, home to 66% of activist hedge funds and to 90% of institutional investors with a preference for activist investing. Activists focused on North America posted an average return of 16.98% in the 12-month period ending April 30, 2014.
Elliott International is the largest activist hedge fund, with $15.6 billion in assets under management, and also boasts the highest number of commitments from institutional investors.
“Hedge funds using shareholder activism as a method of investment have been a big talking point in the industry in recent years,” said Preqin's Amy Bensted, in a statement. “As activism becomes a more widely utilized approach, fund managers are increasingly seeing viable opportunities for investment in this area, with 2013 seeing the highest number of activist fund launches since 2007. These funds appear to be growing in terms of both numbers and size, with Preqin data indicating that activist hedge funds now account for more than $100 billion in assets.
“Activist hedge funds have performed well in recent years when compared to the overall hedge fund benchmark, but there is an increased volatility associated with this outperformance, and this means that the returns of activist hedge funds fall short of the asset class as a whole when considered on a risk-adjusted basis. However, activism remains a strategy to watch over the next few years, and it will be interesting to see if this investment approach becomes more widespread globally in the future.”