Hedge funds adopting “operational activism” approach

August 1st, 2008
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Activist hedge funds commonly focus on seeking leveraged buyouts, boosting dividends or buying back shares. However the current market climate has made these opportunities scarce, thus creating a push toward “operational activism.” As hedge funds hire more executive talent, they begin to look more like private equity firms. Activist hedge funds are often criticized for investing in companies for short-term profits without knowing how a company is run. There have been several examples of how, hedge funds may win a battle with a company over corporate governance but will not have the intended positive effect on the share price. For example Ralph Whitworth successfully ousted Home Depot's CEO Robert Nardelli; however the company has still failed to remain competitive against rival Lowe's Cos. Some large hedge funds have begun recruiting independent advisers with experience in managing companies. Jana Partner's has hired Jerome York, ex-CEO of Chrysler and International Business Machines, and John Kanas, ex-manager of North Fork Bancorp. Mr. York and Mr. Kanas have both invested with Jana. Their compensation comes primarily from increase of the targeted company's shares. Analysts predict that Jana Partners may be targeting banks and/or manufacturing and tech companies because of Mr. York and Mr. Kanas' collective backgrounds.
For Detailed Investor Profiles on these Investors, click below:
JANA Partners
Relational Investors LLC
Related People: Barry S. Rosenstein; David Batchelder; Frank Hurst*; Gary Claar; Glenn Welling*; Henry Jay Winship; John A. Sullivan; Kirt Karros; Ralph Whitworth
Related Entities: JANA Capital LLC; JANA Master Fund LP; JANA Nirvana Fund LP; JANA Partners LP; JANA Piranha Fund LP; Relational Investors Alpha Fund I LP; Relational Investors IX LP; Relational Investors LP; Relational Investors Mid Cap Fund


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