Hedge Fund Activism

a. The Activism Landscape

Recent years have consistently seen elevated levels of activity by activist hedge funds, both in the U.S. and abroad. Such funds often seek the adoption of corporate policies that would increase short-term stock prices, such as increasing share buybacks, selling or spinning off one or more businesses of a company or selling the entire company. There has been a resurgence of activism activity after the temporary drop during the Covid-19 pandemic; 2023 saw a 9% increase in global activism campaigns compared to 2022, which itself saw a 38% year-on-year increase in the number of campaigns launched in 2021. Approximately 17% of S&P 500 companies have a known activist holding more than 1% of their outstanding shares. Activists’ assets under management (“AUM”) have grown substantially in recent years, with the 50 most significant activists ending 2023 with approximately $156 billion in equity assets. Matters of business strategy, operational improvement, capital allocation and structure, CEO succession, M&A, options for monetizing corporate assets, stock buybacks and other economic decisions have also become the subject of shareholder referenda and pressure, with operational matters attracting particular attention amid the ongoing economic uncertainty. Hedge fund activists have also pushed for governance changes as they court proxy advisory services and governance-oriented investors, particularly as they seek board representation, often through one or a few board seats or, in certain cases, control of the board. Activists have also increasingly targeted top management for removal and replacement by activist-sponsored candidates. In addition, activists have worked to block proposed M&A transactions, mostly on the target side but sometimes also on the acquiror side, with the goal of either sweetening or scuttling the transaction. READ MORE »