Activist hedge fund reputation sinks as media coverage soars
The more media coverage an activist hedge fund gets, the more negative it becomes. That’s the key finding in my study of activists in the press.
Value Act, Jana Partners and Blue Harbour Group are the funds which score highest in terms of positive media sentiment. Their high scores for reputation are tempered, however, by the low volume of media coverage they receive. That said, these funds are well regarded in the press for their success in using constructive and typically non-confrontational approaches to engaging with management and boards.
The biggest names in the business (Pershing Square, Third Point, Elliott Management, Icahn and Trian) are on the other end of the spectrum. They receive enormous media attention but the sentiment in that coverage is much more negative. With greater attention comes greater scrutiny and the media are compelled to come up with new story lines about these funds. Tactics are questioned, managers’ personalities become news, wealth becomes a focus. Even when they score a victory the media coverage will often include reference to a past failure. The bigger the target or the bigger the campaign the greater the risk for negative publicity. Elliott’s fight with the Argentine government, Pershing Square’s campaigns on Allergan and Herbalife and Trian’s fight with Dupont have each been damaging to the managers’ reputation.
In studying the media coverage activist managers’ preference for letting their campaign records do the talking become clear. Most managers do not directly engage with the press, but use letters to shareholders and CEOs/boards as proxies for media relations. Of course some managers do make the rounds on TV, do live events with reporters in attendance and even sit with journalists for in depth interviews. But for the most part, the activist industry wants their record to define them. This is a mistake and the activist scorecard is insufficient to build a consistent, positive reputation. Look at Starboard Value, a fund that has become more active in recent years and received more press, as a result. Their record in terms of wins and losses has been highly positive, yet, the sentiment in the media is more or less neutral.
That is because reputation has to be about more than wins and losses. The previous post in this blog focused on whether activism is good for our financial system. That is the big question and the fact that activists have been winning a lot more than they have been losing doesn’t provide the answer.
The research shows that certain funds would probably benefit from greater media exposure and that the name brand funds would benefit from picking their public battles more carefully and calibrating campaigns based on the associated reputational risk.
From the research one can also conclude that if the activists which get the largest share of voice in the media are viewed negatively, it creates a risk for the entire sector. The case still has to be made for activism: how activists improve corporate governance, accelerate corporate performance and advance the interests of other investors. Until that happens, the activist sector itself faces the risk that the media, the market and even regulators will decide that they are part of the problem rather than part of the solution.