Might be a dumb question, but with all the capital the top MMs have, their ability to accordion into positions, the lower-beta nature of activist plays, them doing almost every other type of event-driven...why don't they take any (hedged) activist positions? Similar to what Elliott does.
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Duration doesn’t allow for it to be honest. But the knowledge of knowing the narratives around the stock and business would be useful for an activist play.
duration, commitment of capital being locked up (MMs prefer trading liquid names for a reason), pretty difficult to enforce or even create proper risk limits for these types of things when thinking about the MM overlay...
Also, the moment a fund is perceived as activist, corporate access suffers a lot, which would obviously hurt the core business of meeting with companies every quarter.
Above comments are great. Adding in, by nature you introduce non-systematic risks that are difficult to hedge against in the broader portfolio context, and the existing structure of MMs prioritises well-rounded bets. As such, with the resources of a MLP, if all pods kick in their version of an activist position, me and you know what MMs do / their structure, but try explaining that to every company out there. You get direct conflicts with other pod, who are running on a completely different story and you're ruining their access - at that point you've got COI galore - which team does business dev then help? Turnover and recycling becomes almost non-existent, and unless there's new limits on draw, most pods may mess up badly. The other big thing is regulation - private access will enact strict disclosures, and watching pod moves - and then being able to convince regulators that they didn't talk before xyz position was taken or recommended is a PR nightmare. I doubt any business dev would want to chuck resources at that. Not to say all of these are unsolvable issues, but I doubt it would be practical.
Ultimately, the nature of platforms is to have risk-spread and investment-spread styles across various independent teams. Introducing activist strategies that try to unify or something could undermine this fundamental structure by forcing alignment or coordination in ways that could dilute the independence and varied expertise each pod brings to the overall portfolio. This not only complicates management but could also potentially erode the value proposition of a MM setup to investors who seek exposure to a broad range of independent strategies under one umbrella.
Additional to the points highlighted above, it's also a difference in skillset. It overlaps less with L/S strategies and far more with the PE playbook. Contrary to popular believes, the majority of activists work actively and constructively together with boards and management teams and are able to bring a wide range of commercial and operational experience to the table.
Quite the opposite of L/S where you're paid to take a view on whether EPS will under/over-perform that quarter vs. supporting companies to create value over the long-term.
I mean, the fact the skillsets for pod L/S and activism are different is pretty irrelevant lol. There are challenges for the pods doing activism starts, but talent availability isn't really one of them.
The question was 'why don't they take any (hedged) activist positions?' - because the skillset is not the same....
Companies won't listen to pods because what pods care about and what companies care about are entirely different
Again, this isn't a really fair comparison. As it stands right now its true, but presumably an activist team at a pod wouldn't be under the same quarter/VaR drawdown pressures the normal L/S books are so their aims would be different...
I don't think activism will ever become a pod strategy though.
My team had convos with sr mgmt about going activist one time, was a pretty obvious target and a large activist fund ended up agitating shortly after (we might have good relationships with them…). Ended up not doing anything direct because practically speaking, going activist puts you under a microscope and takes a ton of time and those are 2 things you really don’t want to have to deal with while managing a decent-sized book. As others have mentioned, it doesn’t really fit the mandate and especially not high turnover books (we had a mix of durations and were ok with the longer hold of the activist target). But most importantly, you will destroy your relationship with company management teams. In the high velocity pod shop game, management access/relationships are super important and if you get all up in theirs or a competitor’s business, that’s a fast track to companies hating and not trusting you. Juice is not worth the squeeze.
But 100%, you should try and form relationships with activists. Can create value there for sure.
activist investors are gay af.
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