| Hedge fund stake in public companies growing |
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| 12/11/2006 | |
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Hedge funds are holding bigger stakes in public companies, according to a new Gartmore study, which shows they hold a 5% stake in 38% of the world's public companies, an increase of 12% compared to a similar survey in 2004. Hedge funds with a 10% or bigger stake in public companies increased twofold in the last two years. A number of companies have particularly concentrated positions. Among them: the UK cable operator NTL with 28 funds representing a 38% stake, ten hedge funds accounting for 15% of Polo Ralph Lauren and another 19 controlling 26% of MasterCard. And the winner is? The findings come at a time when hedge fund activism is on the rise. In another study by New York University's Stern School of Business, 60% of the hedge funds interviewed were successful in getting management to acquiesce to their demands. Yet the study concludes that activism did not always open the door to improved fundamental results for the companies. In many cases, earnings-per-share and return on assets declined in the year following hedge fund investment as companies were forced to make significant dividend disbursements to shareholders, according to the Stern report. In one recent example of shareholder activism, London-based Centaurus Capital launched a campaign to force the Dutch engineering group Stork to break itself up. Together with another hedge fund, they own almost 33% of the voting rights in Stork. The outcome is still pending following a move from most shareholders to approve the resolution in October. There is no index to track the performance of hedge funds devoted to shareholder activism, perhaps because the number of activist funds is limited. Hedge Fund Research in Chicago surveyed 44 activist funds and found that they had posted returns of 20.64% from August 2003 to August 2006. Performance was 13.3% from August 2005 to August 2006. V.B. |
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