Hedge Fund Activism in Europe

The Returns to Hedge Fund Activism in Germany

“…On the one hand, hedge funds have a flexible investment mandate and may deviate from any (self‐) classification in commercial databases to choose activist strategies (e.g., when they are under performance pressure). On the other hand, hedge funds use a variety of mechanisms to behave in an activist manner and to exercise control over target companies, most of which are not publicly observable (Becht et al , , ; Deutsches Aktieninstitut and McKinsey & Company, )…”

Investor Activism and Mergers and Acquisitions (M&A)

“…In an international study of activism covering both public and private (362) events from 2000 to 2008, it was noted that the returns from hostile activist interventions showed to be more profitable than co-operative ones, and returns for specialist activist funds were substantially larger than for other investors. Separate legal jurisdictions also could not explain 8 differences in returns across countries; and the success rate of activism across countries looks similar (Becht, Franks and Grant 2010).…”

“…It is only rarely that activists use proxy contests to push their agenda. Becht et al (2010) helped analyze public versus private activism too. They note that private activism usually occurs behind closed doors and so is able to achieve better returns compared to public activism.…”

“…The largest outcome gains were attributable to restructuring announcements (8.4% cases) where 40% of the restructurings were takeover announcements and had associated abnormal returns of 15% compared with 3.7% for the remaining restructurings. Significantly, these returns include the global financial crisis year 2008 when activist funds suffered large abnormal losses (Becht, Franks and Grant 2010). Boyson and Mooradian also noted the presence of specialization in the approach taken by 'frequent activists' that tends to take a consistent, rather predictable approach to their target firms, and exhibits persistence in the long-term stock performance of the target firm.…”

“…It is usually followed by some level of acceptance of the activists' demands. The international study of activism by Becht, Franks and Grant (2010), noted that the returns from hostile activist interventions showed to be more profitable than co-operative ones.…”