Hedge Funds that Value Invest

No doubt there are successful value hedge funds, but when I think value investing, I think mutual funds.

I've been reading Hedge Hunters, which profiles a bunch of funds (Ospraie, Canyon Capital, Avenue), and EVERY SINGLE ONE claims to be a value fund (and a contrarian, but that's beside the point). Ospraie seems to be the most serious about it though, with 5 year lock-ups. They're not a pure equity shop, though; they focus on commodities.
Bridger Management is also profiled. They're a pure long-short equity shop that takes 5 year positions.

A lot of times value investing and activist investing go hand in hand, here is my list of value shops:
Barington Capital
Blum Capital
Breeden
Clark Estates
Fairholme
Icahn
Jana
Marathon Partners
New Mountain Vantage
Prides Capital
Sageview
Shamrock
Stadium
Third Ave.

value and activist investing do not go hand-in-hand.

jana partners is more akin to a corporate raider than anything. take a look at their letter to CNET shareholders.

activist investing means that you shake up corporate boards to get the changes that you want to drive the stock price up. sure, activist investors buy into a company when the price is extremely depressed, but they don't have the same investing philosophy as Buffett. they will try to coerce stock buy-backs or sell-off parts of the company to generate a short-term price increase in the share price. once they get their double or triple digit returns, they sell and forget the company.

big difference.

What sort of qualifications does it take to break into an activist fund? I'm a first year IB analyst with a much bigger interest in hedge funds than in PE. I'd be interested to hear what it takes to be considered for a place like Jana (their website is pretty slim, as is often the case with HF sites).

Thanks in advance for any input.

On a side note, is it better to do 2 year stint in investment banking vs. trading if you are interested in this type of Buffett value investing? It seems like the M&A and corporate valuation comes in handy, more so than short term trading. Thoughts?

Aachimp: The days of fast money style activist investors is virtually gone. Green mailers lose credibility, and activist investing is very much a reputation game. The best activist investors are traditional deep value, graham and dodd style value investors who hold their portfolio companies for 1-5+ years. Reshuffling boards, selling off assets, pushing for share buybacks, selling entire companies, etc, is not financial engineering to generate a short term bump in share price: rather, it is an effort to unlock nascent value on a company's financial statements. The notion that activist investors are just glorified pump and dumpers is inexplicably misleading. The last activist HF I worked for had an average holding period of 5 years, former CEOs of major companies on the payroll to help portfolio companies implement operational and strategic improvements, and 25% annual returns over a decade and a half of investing. It's pure graham and dodd, of course, so when a share price hits intrinsic value, there is no incentive to continue to hold the investment.

JDmaybe: I am in occasional contact with kathy burton. her primary interest as a journalist and now a novelist is in value/activist HF managers, so that's why her book seems so replete with them. There are many different strategies in hedge fund land, most of which boil down to "value" by some definition or other, but certainly "value" isn't a catch-all label for every strategy. Neither is contrarian.

TheKing: 2 years IB is better, though realistically the best activist hedge fund analysts come out of private equity. This is because the strategy is predicated on the investor's willingness and desire (at least in theory) to own the entire company at a given purchase price, which is an experience more akin to PE.

aachimp: I disagree with your post. I didn't say that they always go hand in hand, but yes often times they do. Activist investing doesn't mean always mean they meat nasty letters, demand greenmail and threaten to bust up the company. The fund I work for is an activist/value shop and we work with many other funds that use similar investing strategies. Many times we take a position in a company and get a board seat in order to help speed up the time line on an investment. The original post also included Eddie Lampert, are you saying that he is not an activist investor?

Lots of good points already -- I would also drop in that many of the ex-Goldman Sachs Merger-Arb desk / Principal Strategy alumni funds, such as Perry Capital, TPG-Axon, Och-Ziff, Eton Park, are pretty much value-driven investors. GSPS now GSIP is probably the best of the best at it.

I see what you're getting at. Most of the companies on the list would fall into value as well, but something like Jana Partners is by no means a value investor.

...probably not.

how, if at all, does comp differ at a "value" shop compared to a place with a more short term perspective?

Whitney Tilson's funds are just mutual funds. Dardashti Capital is one hedge fund that value invests.

I guess I always figured value investing does not lend itself to high leverage/fast trades/etc. (ie: most hedge funds).

I only interviewed with one fundamental investing hedge fund (Lehman Equity Strategies), which was fundamental-based long/short. They were very big on valuation of stocks and that kind of thing. I know for all the other people I've met who also interviewed with them at Wharton, all of us had banking/PE type experience. Only one guy at Penn who i kno interviewed with them had S&T experience(and his GPA was 3.95+)

hedge funds *and* mutual funds

Thanks MMmonkey. Tilson is an interesting guy. I went with a group of students to the Berkshire meeting a month ago, and he holds a big reception.

Would like to though. I did get his e-mail about the reception this year in Omaha. Was he really accessible?

I just saw your profile. I now understand what group you were with.