Activist hedge funds remain in the red despite recent recovery, as campaigns dwindle in 2020

Financial data

The first half of 2020 has proved tricky for activist hedge fund managers, as performance remained in the red and the number of companies targeted by activists fell to its lowest level in five years.

Activist strategies were hit hard earlier in the year by the coronavirus pandemic, but more recently performance has recovered, according to new eVestment data, with managers soaring almost 23 per cent during the second quarter of the year.

But despite recent the recent resurgence - which included a 4.71 per cent advance in June – activist hedge funds remain down 6.44 per cent for the year, eVestment research noted.

One notable success story has been Sir Chris Hohn’s high-profile activist giant The Children’s Investment Fund Management. The USD30 billion hedge fund manager sounded early warnings over the fraudulent accounting practices surfacing at Wirecard, which collapsed last month.  Back in May, TCI filed a criminal complaint against the German e-payments firm, citing “anomalies that may have criminal relevance” and built short bets in its failing stock.

Meanwhile, the number of companies publicly subjected to activist demands globally during the first half of this year dropped to its lowest level in five years, according to new data jointly produced by information provider Activist Insight and Olshan Frome Wolosky, a New York-based law firm.

Some 522 companies were publicly targeted by activist investors in the first six months of 2020, a sharp fall of more than 100 from the 628 targets recorded in the first half of 2019.

In the US, there were 329 activist targets in the six-month period to the end of June, down slightly from 352 in H1 2019.  In Europe, meanwhile, there were 75 activist targets in H1, down from 106 in the first half of last year.

The number of companies publicly facing impactful campaigns in H1 2020 fell to 39, its lowest since the first half of 2014, Activist Insight’s half-year study found.

While market corrections have historically offered rich buying opportunities for special situations and activist-focused strategies, managers are yet to seize on the prevailing environment in meaningful numbers, according to strategists at Lyxor Asset Management.

“All in all, activists have not shown the same appetite for bargains than in previous sell-offs,” Lyxor strategists said in a note last month.

“A V-shaped market rebound and rich valuations are not providing a large universe of oversold stocks. Moreover, given that the full effects of the pandemic on businesses have yet to emerge, concentrated and buy-and-hold special situations managers are still reluctant to add much risk.”