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It was the golden age of activist investing and CEOs, corporate superlawyers, venture capitalists and even George Clooney seemed powerless to stop it. “No recent development has influenced firms' strategic and financial decision-making as profoundly as the surge in shareholder activism following the global financial crisis,” JPMorgan’s corporate finance advisory group said in a report at the start of 2015. “From a few activist funds managing less than a total of $12 billion in 2003, the activist asset class has ballooned to more than $112 billion in assets under management for activist hedge funds.”
But this has been a humbling year for activist hedge funds that take stakes in publicly-traded companies and agitate for change. They are at the height of their power, but in general they are having an awful year. Their funds are tanking, their ideas aren’t working and some of the companies they all but control are floundering. If things continue this way, it won’t be long before corporate boards will argue that these activist hedge fund guys have no business telling them how to run their business.
The train wreck going on at Valeant Pharmaceuticals is the most glaring example. Shares of the company fell by another 14% on Thursday and are now down 45% in 2015. The stock is down by 70% from its 2015 highs. This is a company that is run by activist hedge funds for activist hedge funds. ValueAct Capital, one of the most respected activist hedge funds, helped create the company, hire its CEO, and has two seats on the company’s board. Billionaire hedge fund activist Bill Ackman is Valeant’s second-biggest shareholder. He hosted a four-hour conference call on Friday, defending the company against accusations related to Philidor, the specialty pharmacy that has been at the center of the recent Valeant storm. But Ackman has not been able to stop the bleeding. His Pershing Square Holdings finished October down 19% in the first ten months of 2015.
But it’s not just Ackman who is down. Carl Icahn, the billionaire elder statesman of activism, saw his investment fund fall by 10.3% in the third quarter and finish September down 2.8% for the year. Barry Rosenstein’s big Jana Partners hedge fund finished October down by about 4% for 2015. Richard McGuire, the new young hot shot activist hedge fund manager, is down 4% this year. Billionaire Dan Loeb’s Third Point hedge fund is flat on the year.
While shares of Valeant were plunging anew on Thursday, Rosenstein’s $11 billion hedge fund firm was also hit as its second-biggest position, Qualcomm, tumbled. Shares of Qualcomm fell by 15% on disappointing earnings from the chip maker. Rosenstein made a $2 billion bet on the company and pushed the company to shake things up by conducting big share repurchases, cut costs and changes it executive pay practices.
To be sure, Wall Street’s big activist hedge funds are down. But they are far from out.
