What is the difference between activist investors and regular investors? Investing explained

INVESTING EXPLAINED: What you need to know about activist investors, who buy stakes in all kinds of companies to drive reform

In this series, we break down the jargon and explain a popular investment term or topic. This is about activist investors.

Someone who invests in gyms?

That would be correct. An activist investor buys stakes in all kinds of companies to achieve reforms, such as breaking up the business, increasing dividend payments, or firing the CEO.

The overall goal may not be clear, but the goal is to make money, although this may not happen.

Most activist investors are hedge funds, but institutions can get involved.

Cashing in: an activist investor buys stakes in all kinds of companies to carry out reforms

Why is this in the news now?

In the United States, there has been a surge in activist activity, partly in response to a rule adjustment by the Securities and Exchange Commission, the investment watchdog.

This week, Disney CEO Bob Chapek was ousted and replaced by Bob Iger, the former incumbent.

Activist investor Daniel Loeb, head of hedge fund Third Point, has been pushing for major change at Disney.

What companies are under pressure?

Big Tech is in the crosshairs of activists. Alphabet, which owns Google, is under attack by TCI, the hedge fund led by British manager Chris Hohn. TCI, which has a $6bn (£4.9bn) stake in Alphabet, wants the tech titan to cut its costs. Brad Gerstner, head of hedge fund Altimeter Capital, is also campaigning for lower spending, in the Meta group on Facebook and Instagram.

Altimeter wants Meta to focus less on the metaverse. Meta’s shares are up 20 percent over the past month, while Alphabet is up 3 percent.

Is something wrong in the UK?

Much. Nelson Peltz, 80, of Trian Fund Management, is best known as Brooklyn Beckham’s father-in-law.

But it is also making its presence felt at Unilever, the Marmite group and Magnum, where it has a £1.4bn stake.

Peltz is on the board and is reportedly looking for candidates to take over as CEO when Alan Jope steps down next year. His playbook is based on spinning off or selling divisions.

He is the victor of battles at Cadbury Schweppes and Procter & Gamble.

Anyone else in the spotlight?

The Anglo-Swedish fund Cevian Capital, which bought 6 percent of Aviva in the summer of 2021, is demanding that the insurer increase returns for shareholders.

This month the downsized company promised “regular and sustainable” payments.

These dividends make Aviva an attractive buy, according to some analysts.

Who is the most famous activist?

Carl Icahn, 86, gained notoriety in the 1980s as a corporate raider through campaigns at airline TWA and food group RJR Nabisco.

The latter’s downfall is chronicled in the book Barbarians At The Gate, which was made into a movie. In this century, Icahn has reinvented himself as an activist shareholder, vowing that the share prices of his target companies would skyrocket on the “rise of Icahn.”

Is it lucrative to follow activists?

Sometimes yes, sometimes no, which is irritating. Icahn’s current focus is Crown Holdings, a maker of beverage cans. His stock is up 18 percent since he came on the scene. Unilever’s shares are up a bit this year, but Aviva’s are down.

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