We recently published a list of The 15 most feared activist hedge funds. In this article, we take a look at Elliott Management’s position compared to the other feared activist hedge funds.
Activist investors are a force to be reckoned with, having a profound impact on companies around the world and on investor action. They differ from ordinary investors in that they acquire large stakes in publicly traded companies to create change that they believe will unlock additional value.
While public pension funds and mutual funds also participate in equity activism, activist hedge funds often hold significant positions and use additional leverage from derivatives such as stock options to offset the costs of such campaigns. In addition, activist hedge funds acquire positions in distressed companies shortly before they campaign for change, with the goal of profiting from the resulting improvement and increase in stock value.
Activist investors declare their initiatives by submitting a Schedule 13D to the U.S. Securities and Exchange Commission (SEC), which must be filed within ten days of acquiring 5% or more of a company’s voting stock. They often begin their campaigns for board positions in the first few months of the year, as they prefer to introduce new board members shortly before the company’s annual general meeting, which they hope to influence.
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Unlike private equity groups that buy and transform companies to make a profit when they are sold, activist investors rarely gain full or controlling ownership. Instead, they rely on public statements and confidential discussions to gain support from other shareholders and within the company. If these strategies are unsuccessful, an activist investor might seek a proxy war to appoint new board members, with the goal of forcing the company to comply with its demands.
A company might attract the attention of the most feared activist hedge funds if it needs better management or has high costs. In some cases, it might be targeted if the investors want to take the company private or push for the sale of some shares to unlock additional value. It might also be targeted if the activist investors believe it is a problem they can solve to create more value.
While the modest goal of activist hedge funds may be to advise company management, in most cases they are known for their aggressive approach, pushing for board seats to influence a company’s strategic direction through decisions. Some activist investors have become known for entering failing companies and then pushing for management changes by warning board members – and sometimes even CEOs.
The majority of activist campaigns, however, take place behind the scenes. About two-thirds of the fights take place behind closed doors, with deals made without the public knowing about them. Only when activist hedge funds or investors feel they are being given the cold shoulder by management or the board do they go public to gain shareholder support.
Elliott Management is arguably one of the most feared activist hedge funds, having targeted some of the largest companies and taken on some of the most well-known investors, including Warren Buffett. However, it is not alone in this highly competitive field, as Starboard Value LP and Trian Partners, to name a few, are consistently targeted by investors looking for deeply undervalued stocks with tremendous upside potential.
2023 was one of the most successful years for activist hedge funds, which bounced back after an average loss of 16% in 2022. As the stock market as a whole rose in 2023, with the S&P 500 gaining 24%, activist investors generated an average return of 20.2%, recouping a significant portion of the losses accumulated in 2022.
Among the most feared activist hedge funds that finished on top was Value Act Capital, which outperformed the S&P 500 by 39 percent. Caligan Partners also gained 37 percent, and Engaged Capital returned 29 percent.
While interest rate hikes and other factors slowing growth hurt some companies, activist investors successfully pushed for cost cutting, management changes and strategic alternatives. Many boards realized too late that in today’s climate, it will take more than just adding new board members to make up for the performance losses.
In the first six months of 2024, the 15 most feared activist hedge funds launched a record number of campaigns. Investment firm Barclays tracked 147 activist campaigns, a new record after the previous high of 143 campaigns in the first half of 2018. In the second quarter alone, there were 86 campaigns, with Elliott Management launching 11 campaigns and deploying nearly $11 billion in capital.
Increasing activist campaigns threaten to trigger costly disputes between activist shareholders and management, while calling for leadership changes, spin-offs and the outright sale of underperforming companies or business units.
Our methodology
After combing through numerous media reports from the past and present, we compiled a list of the most well-known activist investors. We then selected the hedge funds with the largest portfolios and ranked them in ascending order of portfolio size (as of Q1 2024).
At Insider Monkey, we’re obsessed with the stocks hedge funds invest in. The reason is simple: Our research shows we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).
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Elliott Management
Portfolio value: $16.12 billion
Founded in 1977 by legendary investor Paul Singer, Elliott Investment Management is one of the 15 most feared activist hedge funds. The hedge fund manages two funds, Elliott Associates LP and Elliott International Limited, and seeks to influence company management as part of its activist campaigns, as is the case with Southwest Airlines Co. (NYSE:LUV). The hedge fund is expected to generate $5.5 billion in 2023.
The hedge fund also pushes for strategic changes, including cost cutting and selling shares or entire companies to maximize value for shareholders. Elliott Investment is best known for pressuring companies’ leadership teams to make certain changes that would benefit the stock price and shareholders. The hedge fund has purchased activist stakes in more than 140 companies over the past three decades, including Southwest Airlines Co. (NYSE:LUV).
The hedge fund, with a portfolio value of around $16.12 billion, invests primarily in corporate real estate and government bonds. Its portfolio also includes shares in companies in the basic materials, technology, healthcare, consumer discretionary and financial services sectors. The hedge fund has only experienced two periods of economic losses in fifty years.
Recent activist campaigns include Texas Instruments Incorporated (NASDAQ:TXN), in which the company has amassed a $2.5 billion stake and is pushing the company to improve its free cash flow by adopting a less stringent capital expenditure plan. It has also launched an activist campaign at Southwest Airlines Co. (NYSE:LUV), calling on the company to fire CEO Bob Jordan and Chairman Gary Kelly as the company has suffered from margin deterioration and share price declines over the past four years.
General Elliott Management 1st place on our list of most feared activist hedge funds. While we recognize LUV’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than LUV, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
