You are here

Block title
Block content

Activist Hedge Fund Strategies

Paper Date: 
Sunday, December 19, 2021
Abstract: 
There is a general understanding in the market of hedge funds and how they operate, and one of the features unique to hedge funds is they have a lack of transparency. There is not enough light shown on the unique approaches they take on an individual level which is distinct based on the overall strategy of the fund. Let alone looking at hedge funds that pursue an activist stake in their investments as it takes more resources and time to actively contribute to an investment and cause a degree of change. The findings in this paper focus on bringing forth the experience of hedge fund activists, the tools and strategies they deploy from before announcing their activist stake, up-to the point of finding an acquirer of their choice to promote selling the target company to. The paper analyses in a case study format the process three distinct hedge fund activists take in approaching a target firm until the reap the returns on their investment at the sale of the firm to a third part. The research examines three case studies in detail by finding hedge fund activism actions that resulted with the target firm being acquired by a third party. The hedge funds were identified along with their plans and strategies, and the response they received from the stakeholders of their respective target firms was further analysed. The case studies were selected on hedge funds and target firms that are based in the United States where there is an established hedge fund market. From the case studies we learn that the typical targets for activist hedge funds have qualities that make them more attractive than others as they are mature firms with strong cash flows but lack strong governance. The hedge fund activist is able to refocus the business and more efficiently allocate resources. The hedge fund activist plays two key roles in a firm: expert manager and corporate monitor, and this is why shareholders of the target firm, and the market as a whole reacts positively to the announcement of their activism. The three case studies demonstrated the great lengths that hedge fund activists would go to have their demands addressed by the target firm and ignoring their proposals did not make them go away. Each of the companies discussed was approached because it had a strong asset or product, but they would do better to be under different management.
Subject: 
Finance