"If the strategy is to suggest a stock buyback, that is clearly not going to happen at the moment. Simply suggesting the company buy back stock or similarly looking to a financial buyer or a private equity shop as an exit strategy is now off the table," says Barry Cronin, of Taylor Advisors, a fund of hedge funds that at times invests with activist hedge funds.
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"In a bull market it is easy to demonstrate that a company is underperforming its peers by 25%. In a bear market, if peers are down 50% and a firm is down 55%, that’s a tougher story to sell" Julien Balkany, Nanes Balkany Partners |
Activist hedge funds have had a stimulating few years. Their performance is derived from building a stake in a company, turning companies around or finding economic means to unlock value and then selling the stake to a private investor or back into the market. In a bull market where stock prices are expected to go up irrespective of unlocking value, it is clearly an easier strategy to sell to end investors. Also, adds Julien Balkany, co-founder of Nanes Balkany Partners, an oil and gas activist hedge fund: "In a bull market it is easy to demonstrate that a company is underperforming its peers by 25%.
