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Mar 09, 2015

Activists lead gains in hedge fund industry

High-profile activists and large corporate cash holdings mean activism is likely to grow this year, HFR says

Activist strategies led gains in the hedge fund industry in February as companies maintained high levels of cash holdings and recent gains in equity markets increased the perception of poor management strategies at some companies, according to industry analysis firm Hedge Fund Research (HFR).

The HFRI ED: Activist Index, which measures the performance of hedge funds that mainly pursue activist investment strategies, increased 4.4 percent in February, its strongest monthly gain in two years, the firm says in a press release. That compares with an increase of 1.9 percent in the HFRI Fund Weighted Composite Index, HFR’s broadest measure of global hedge fund performance.

‘The favorable trend toward shareholder activist hedge funds accelerated in February, with strong performance fueling investor demand for strategies with the expertise, capital and presence to effectively execute in the activist space,’ says Kenneth Heinz, president of HFR, in a press statement.

‘The combination of variables that has contributed to the activist trend, including high corporate cash holdings, improving investor risk tolerance and equity market gains that expose poor management strategy execution, shows no signs of slowing, even with categorical strategy volatility from last October.’

HFR also attributes the rising prominence of activist hedge funds to widespread publicity surrounding high-profile industry figures such as Carl Icahn and Bill Ackman, as well as prominent activist campaigns and the strong financial performance of activist hedge funds.

In the last 12 months, HFR’s Activist Index has gained 7.9 percent, more than double the 3.6 percent increase in the HFRI Fund Weighted Composite Index. These gains, and the publicity surrounding activist campaigns, mean activism will likely continue to grow this year as a hedge fund strategy, HFR says.

‘The captive and growing audience of global investors interested in improving strategy, governance and returns is likely to continue to drive growth in activist hedge funds in 2015,’ Heinz says.