Hedge fund manager Daniel Loeb, the founder of Third Point LLC, has hit back at the those taking aim at activist investing.
Loeb, one of the most prominent activist investors of his generation, defended the strategy in his second quarter letter to investors.
The strategy has generated bumper returns for investors over the years, but has recently faced criticism from the likes of Blackrock chief executive Larry Fink and Democratic presidential candidate Hillary Clinton.
Loeb argues in his letter that a lot of the criticism is out of date. He explained that his generation of activist investors is different from the corporate raiders of the 1980s.
Here’s Loeb (emphasis ours):
Lately, a varied chorus of powerful union bosses, politicians and candidates, an asset management company executive, and a few ivory tower types have asserted that activism is short term in nature, engaged in by “hit and run” investors who care only about making a quick buck while leaving a company and its employees in ruins. They assert that activists blackmail their targets to choke off long-term growth initiatives like research and development in favour of financial gimmicks that artificially and temporarily inflate share prices.
It might surprise people to hear that we agree completely that the sort of activism they describe is abominable. Luckily, it does not really exist, and certainly not at Third Point. Activists today are very different from corporate raiders of the ’80’s (about whom these criticisms might have been leveled fairly). Our activist investments, which we consider to be those in which we seek to use our minority shareholding to obtain board seats, have been some of our most complex and have been held for well over the one year threshold identified as offensive by the critics. In almost every example — from Ligand to Yahoo to Sotheby’s — our influence has contributed meaningfully to the sustainability and growth of the companies in question. In each of the three investments above, for example, we brought in all-star CEOs and gave them extensive runway to implement ambitious turnaround plans that would take years to come to fruition. A strong CEO with a coherent operating plan can create value for shareholders along the way as their plans are implemented. Our investors have benefitted from our ability to install visionary leaders like John Higgins, Marissa Mayer, and Tad Smith.
Loeb launched Third Point 20 years ago with $US3.4 million in capital from only five investors — all friends and family — and his own money. The activist investor has generated annualized returns of 20.5% since then, compared to the S&P 500’s annualized returns of 9.1% over the same period.
Loeb is up 4.9% for the first half of 2015, outperforming the S&P 500 whiuch is up 1.2%.
He also touted investments in the likes of Allergan, Suzuki Motor, Constellation, Mohawk, and Roper in his letter.