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.
In a freshly-amended 13D filing, Carl Icahn of Icahn Enterprises reported owning 82.31 million shares in Xerox Corp (NYSE:XRX), accounting for 8.13% of the company’s outstanding shares of common stock. This compares with the 72.22 million-share position revealed through the initial 13D filing on the company, which was discussed by the Insider Monkey team at the end of November. Let us remind you that the billionaire investor and his team also expressed their conviction that the shares of Xerox were undervalued when purchased. The shares of Xerox are 28% in the red year-to-date and are trading at a relatively cheap forward price-to-earnings ratio of 9.92, which is substantially below the average of 17.35 for the S&P 500 Index. The company reported total revenue of $13.4 billion for the nine-month period that ended September 30, down 8% as compared to the same period of 2014. The revenues generated from the Document Technology segment, which includes the sales of A4 devices and desktop printers, A3 devices and other production printing and publishing systems, accounted for approximately 41% of the aforementioned $13.4 billion figure. Although Xerox still represents the market-share leader in the document technology industry, the revenues generated from this segment have been on a slide. Xerox’s Document Technology segment revenues for the first nine months of 2015 totaled $5.49 billion, down from $6.20 billion reported a year ago.
A total number of 33 hedge funds from our database had positions in Xerox at the end of the third quarter, compared with 30 reported at the end of the prior one. These funds accumulated a mere 5.30% of the company’s outstanding shares on September 30, while the overall value of their investments in the company grew to $547.90 million from $405.44 million quarter-over-quarter. David Harding’s Winton Capital Management upped its stake in Xerox Corp (NYSE:XRX) by 24% during the July-to-September period, ending the quarter with 8.34 million shares.