Statistics reveal that shareholder activism has been on a surge in recent years, with new players entering the activist battleground and more capital flowing into existing activist funds. According to Hedge Fund Research, activist hedge funds had $130 billion in assets under management in the first half of this year, compared to less than $50 billion back in 2010. This surge in activist hedge fund assets under management reflect the unceasing success of these investment vehicles over the years. For that reason, this article will discuss two filings submitted with the SEC by billionaires John Paulson and Carl Icahn. Although Paulson does not usually act as an activist investor, he does engage in activist campaigns on some occasions.
Following activist funds is important because it is a very specific and focused strategy in which the investor doesn’t have to wait for catalysts to realize gains in the holding. An activist fund can simply create its own catalysts by pushing for them through negotiations with the company’s management and directors. In recent years, the average returns of activists’ hedge funds has been much higher than the returns of an average hedge fund. Furthermore, we believe do-it-yourself investors have an advantage over activist hedge fund investors because they don’t have to pay 2% of their assets and 20% of their gains every year to compensate hedge fund managers. We have found through extensive research that the top small-cap picks of hedge funds are also capable of generating high returns and built a system around this premise. In the 38 months since our small-cap strategy was launched it has returned over 102% and beaten the S&P 500 ETF (SPY) by more than 53 percentage points (read more details). Soon, we’ll be releasing a new quarterly newsletter written by former activist hedge fund analyst Michael Bland that tracks ten or so activist campaigns at any given time.
According to a Form 4 filing, John Paulson of Paulson & Co. sold 757,900 shares of Cobalt International Energy Inc. (NYSE:CIE) last week at prices in the range of $6.57-to-$7.00 per share, cutting the fund’s overall stake in the company to 40.99 million shares. The freshly-cut stake accounts for 9.89% of the company’s outstanding common stock. The independent exploration and production company has operations in the deepwater U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa, but the company has not started production yet. Cobalt International Energy Inc. (NYSE:CIE) owns a 9.375% non-operated working interest in the Heidelberg project in the U.S. Gulf of Mexico, which is anticipated to commence production in the second quarter of 2016. The company reported a net loss from continuing operations of roughly $49.7 million for the third quarter of 2015, which was down by 26% as compared to the same period a year ago. Meanwhile, the stock appears to be following the ups and downs of crude oil prices, and has lost 29% so far in 2015.
The number of smart money investors with long positions in Cobalt International Energy climbed to 18 from 17 during the September quarter, whereas the value of these positions shrank to $800.11 million from $966.39 million quarter-over-quarter. Hedge funds tracked by Insider Monkey owned 27.30% of the company’s shares at the end of July-to-September reporting period. Israel Englander’s Millennium Management held a 9.06 million-share position in Cobalt International Energy Inc. (NYSE:CIE) on September 30.
Let’s head to the second page of this article, where we discuss a 13D filed by feared activist investor Carl Icahn.