The Activist Investor
Clockwise from top left: Carl Icahn, Jeffrey Ubben, David Einhorn, Daniel Loeb
The world's corporate leaders got a blunt
warning this year: No company is too big or valuable to escape the
threat of increasingly aggressive activist investors. Carl Icahn and
David Einhorn bought into Apple, the world's most valuable company
(market cap: $467 billion), and loudly demanded that it return more cash
to shareholders; Apple (AAPL, Fortune 500) expanded its stock buybacks not long afterward, and now Icahn wants even more. Jeffrey Ubben invested in Microsoft (MSFT, Fortune 500)
more quietly, but one can't help noticing that four months later, the
tech giant put him on its board of directors and CEO Steve Ballmer
announced he was stepping down earlier than planned. Other activists are
pushing for change at J.P. Morgan Chase (JPM, Fortune 500), PepsiCo (PEP, Fortune 500), UBS (UBS)
-- no company is immune. Activists' new strength isn't mysterious.
Major institutional investors are sending dollars to activists, having
noticed that activist funds overall have been outperforming the market
averages. That's a big reason activist funds' assets have mushroomed
from $12 billion a decade ago to over $89 billion now, says Hedge Fund
Research. Activists' clout could expand even more as they go global.
(Daniel Loeb has tried to shake up Sony (SNE),
for example.) But funds' thunder might quiet if their returns shrivel, a
possibility that reflects a nagging doubt about their performance. The
activists have done well in a rising market. The sterner test will come
when they have to work their magic in a falling one.
--Geoff Colvin
--Geoff Colvin
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