Activists lead hedge fund returns in February

AnalyticsActivist hedge funds posted the strongest of all hedge fund returns in February and appear to highlight a trend for investors to use these funds.

The activists are a sub-section of the event-driven strategies index compiled by HFR, A Chicago-based hedge fund index provider, and posted a 4.4% return for February compared to the 1.85% return posted by all hedge funds.

The HFRI Event Driven Index gained 3% – the best monthly return since October 2011 – with gains across all sub-strategies led by activist funds.

Activist hedge funds have increasingly come into favour with investors for several years, says HFR, driven by strong performance.

Kenneth J. Heinz, president of HFR, says there is a combination of variables that has contributed to the activist trend, including high corporate cash holdings, improving investor risk tolerance and equity market gains which expose poor management strategy execution. He says these show no signs of slowing.

Dynamic individuals have led high profile campaigns, says HFR, to improve shareholder returns via increased board representation, strategic acquisition or divestiture, and other capital structure improvements including increased dividends, buybacks or debt issuance.

Other event-driven sub-strategies produced strong performance. HFR’s special situations index gained 4.4%, and the distressed index gained 2.1%.

Total capital invested in event-driven strategies was $754 billion (€695 billion) as of the end of 2014, with nearly $120 billion of this in dedicated activist hedge funds.

Equity hedge strategies gained 2.8% in February, the strongest monthly return since January 2013, and was led by HFR’s multi-strategy index, which returned 4.1%.

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