Shareholder activism has been on the rise over the past ten years, with activist hedge funds’ assets under management exceeding the $100 billion level. Most modern activist investors do not resemble the much-feared “corporate raiders” of the 1980s, as they tend to focus on their targets’ long-term performance instead. Meanwhile, statistics reveal that activist targets tend to beat broader market benchmarks on aggregate, but there will always be skeptics and activists should prove them wrong. Nonetheless, individual investors who doubt the benefits of shareholder activism and its outperformance in particular can follow activists’ moves as part of their broader stock analysis process instead. For that reason, this article will discuss two 13D filings submitted by several hedge funds monitored by Insider Monkey.
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. A fund like Starboard 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 have 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.
As stated by a Schedule 13D filing, Farallon Capital Management, a fund founded by Thomas Steyer, owns nearly 3.57 million shares in SolarWinds Inc. (NYSE:SWI), accounting for 4.96% of the company’s outstanding common stock. This compares with the 2.44 million-share stake held on September 30, as revealed by Farallon’s 13F filing for the third quarter. Farallon Capital exceeded 5.0% beneficial ownership of common stock in SolarWinds on December 11, but ceased to be a beneficial owner of more than 5% of shares in the company due to subsequent sales. At the same time, The fund has not conducted any discussions with the company’s officers, directors or other related individuals and has no plans or proposals to the company’s management. In mid-October, the developer of information technology (IT) management software announced that it had agreed to be acquired by private equity technology investment firms Silver Lake Partners and Thoma Bravo LLC for $4.5 billion in cash. As a result, each shareholder of SolarWinds Inc. (NYSE:SWI) is set to receive $60.10 per share, which is at least 53% higher than the company’s share price at the end of September. The discrepancy of slightly more than 3% between the current share price of SolarWinds and the deal price reflects the risk associated with a potential failure of the deal, so one could make a bet on the successful completion of this acquisition. The deal is anticipated to be completed during the first quarter of 2016.
The number of hedge funds from our database with positions in the company dropped to 23 from 27 during the September quarter. Similarly, the overall value of these positions shrank to $403.60 million from $469.64 million during the three-month period. Hedge funds tracked by Insider Monkey stockpiled 13.40% of the company’s outstanding common stock, while Glenn J. Krevlin’s Glenhill Advisors upped its position in SolarWinds Inc. (NYSE:SWI) by 4% during the third quarter to 1.06 million shares.
Let’s head to the second page of this article, which discusses a 13D filing submitted by activist investor Carl Icahn.