What are activist investors? Investing Explained

In this series, we break down the jargon and explain a popular investment term or theme. Here they are activist investors.

Someone who invests in gyms?

That would be right. An activist investor buys stakes in all kinds of companies to implement reforms, such as splitting up the company, increasing dividend payments, or firing the CEO.

The overall goal may be unclear, but the goal is to make money, although it may not happen.

Most activist investors are hedge funds, but institutions can get involved.

Why is this in the news now?

In the United States, there has been an increase in activist activity, partly in response to a change in the rules of the Securities and Exchange Commission, the investment watchdog.

This week, Disney CEO Bob Chapek was fired and replaced by former incumbent Bob Iger.

Activist investor Daniel Loeb, boss of hedge fund Third Point, is pushing for big changes at Disney.

Which companies are under pressure?

Big Tech is in the crosshairs of the activists. Alphabet, which owns Google, is under fire from TCI, the hedge fund led by British manager Chris Hohn. TCI, which has a $6bn (£4.9bn) stake in Alphabet, wants the tech giant to cut its costs. Brad Gerstner, boss of hedge fund Altimeter Capital, also argues for lower spending – at the Facebook and Instagram group Meta.

Altimeter wants Meta to focus less on the metaverse. Meta shares are up 20 percent over the past month, while Alphabet is up 3 percent.

Is something happening in the UK?

A lot. Nelson Peltz, 80, of Trian Fund Management, is perhaps best known as Brooklyn Beckham’s father-in-law.

But he also makes his presence known at Unilever, the Marmite and Magnum group, where he has a £1.4bn stake.

Peltz is on the board and is reportedly looking for candidates to take over as CEO when Alan Jope steps down next year. His scenario is based on splitting off or selling divisions.

He is the victor of battles at Cadbury Schweppes and Procter & Gamble.

Any others in the spotlight?

The Anglo-Swedish fund Cevian Capital, which bought 6 percent of Aviva in the summer of 2021, is demanding that the insurer increase returns for shareholders.

This month, the company, which has downsized, pledged “regular and sustainable” payments.

These dividends make Aviva an attractive buy, according to some analysts.

Who is the most famous activist?

Carl Icahn, 86, rose to prominence as a corporate robber in the 1980s through campaigns at airline TWA and food group RJR Nabisco.

The latter’s fall was chronicled in the book Barbarians At The Gate, which was made into a film. In this century, Icahn reinvented himself as a shareholder activist, promising that the stock prices of his target companies would jump on the “Icahn elevator.”

Is following activists lucrative?

Sometimes yes, sometimes no, that’s annoying. Icahn’s current focus is Crown Holdings, a beverage can maker. Shares are up 18 percent since he came on the scene. Unilever’s shares have risen slightly this year, but Aviva’s have fallen.