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Trian, ValueAct, Third Point Up Strongly in Good Year for Activists

October 08, 2013   Stephen Taub

Hedge fund managers who employ the strategy are agitating their way to big gains in 2013.

   
   Trian Partners founder Nelson Peltz. Photo: (Bloomberg)
Nelson Peltz is on a roll this year - and he has company.

The co-founder of New York-based activist hedge fund firm Trian Partners is one of a handful of managers who employ activist techniques that are enjoying big gains this year. But Peltz is the leader of the pack so far. His eponymous offshore fund, Trian Partners, surged another 4.7 percent in September, bringing its gain for the first three quarters of the year to 30 percent, while the domestic partnership was up 4.6 percent last month and is up 29 percent for the year. This makes Trian Partners among the best-performing hedge funds this year through the end of the third quarter.

Jeffrey Ubben's ValueAct Capital Master Fund, managed by his San Francisco-based hedge fund firm, ValueAct Capital, added 5.8 percent in the third quarter and is now up 19.8 percent through the first three quarters of the year. And last week we reported that Daniel Loeb's Third Point Offshore Fund, managed by New York-based Third Point, is up 18 percent for the year through September. This compares with a 17.9 percent gain for the S&P 500 in the first three quarters, excluding dividends reinvested.

Other activists are also faring pretty well, even though they lag the overall market. Barry Rosenstein's New York-based Jana Partners gained 14.2 percent this year through September 30, while David Einhorn's New York-based Greenlight Capital, which is a more selective activist investor, was up 12.2 percent. Paul Singer's two main hedge funds, Elliott Associates and Elliott International, are up 9.3 percent and 9.0 percent, respectively, for the first three quarters of the year. Only William Ackman's New York-based Pershing Square Capital Management is struggling this year, posting a 0.5 percent gain through nine months, thanks to big losses betting on the shares of J.C. Penney Co. and against the stock of Herbalife.

Trian, founded by Peltz, Peter May and Edward Garden, now manages $7.36 billion in assets, according to its most recent monthly snapshot, dated October 4. Both its onshore and offshore hedge funds had eight core longs and one core short as of October 1, and both funds had a net exposure of roughly 100 percent. However, the offshore fund was 123.7 percent long and 24 percent short, while the onshore fund was 103.2 percent long and just 3.1 percent short.

The firm's gains have been driven in part by industrial conglomerate Ingersoll-Rand, which is up 35 percent this year. Two companies that the activist is urging to merge with each other - food company Mondelez International and beverage giant PepsiCo - are up 20 percent and 16 percent, respectively, through the first nine months. Two new holdings disclosed on Trian's second-quarter 13F filing, chemical company DuPont and auction house Sotheby's, are also doing well.

Trian owns more than two million shares, or 3 percent, of Sotheby's. The company has become a target of two other activist investors - Loeb's Third Point and San Francisco-based Marcato Capital Management, headed by Richard T. McGuire III - but so far Trian has not shown any interest in getting into the fray with management. Third Point recently raised its stake in Sotheby's to 9.3 percent and ratcheted up its rhetoric over its activist intentions.

Shares of Sotheby's are up between 20 percent and 50 percent, depending on when Trian started scooping up the shares. DuPont is up between 11 percent and 20 percent since Trian started building its position in the second quarter.

ValueAct, which held 14 stocks at the end of the second quarter, has especially been driven by four of them: Microsoft, its largest holding, which is up more than 17 percent since the firm disclosed its initial stake at the end of the first quarter; No. 4 holding Adobe Systems, which is up 37 percent this year; No. 3 holding (as of the end of the third quarter) Valeant Pharmaceuticals International, up 85 percent; and KAR Auction Services, a relatively small position, which has gained 40 percent this year.

We recently reported that the San Francisco-based hedge fund firm lifted its ownership in Rockwell Collins, a supplier to airplane manufacturers, to 9.7 percent of the total shares. As a result, it is ValueAct's fifth-largest holding.

Third Point, meanwhile, made $665 million in late July when it sold its huge activist stake in Yahoo. The Internet company's stock - if not its profitability - has been turned around in the past year under new CEO Marissa Mayer.

Jana is also very busy these days. Entering the third quarter, Jana's two largest positions in individual stocks were activist stakes in fertilizer company Agrium and oilfield services company Oil States International. In mid-August, Jana boosted its stake in the latter to 6.45 million shares. Oil States is up about 35 percent since Jana disclosed its stake in the spring.

Its activist stake in chemical company Ashland, its third-largest individual stock position, is up more than 16 percent since Jana reported its initial stake at the end of March. Agrium was down 16 percent through the first nine months of the year.

More recently, last week Jana disclosed a new activist position: a 13.5 percent stake in Outerwall, best known for its Redbox movie rental vending machines. And last month Jana disclosed that it owns 14.95 million shares of supermarket chain Safeway, including options to purchase 3.53 million shares of stock, for a total stake of 6.2 percent.