This paper investigates ‘activist investing’ as adopted by some institutional investors and hedge funds, and explores the resulting impact on the decision-making and corporate governance processes of the companies in which they invest. Firstly, it suggests that although activist investing has become something of a fad and its benefit to firm performance is still disputed, investors’ attitudes have changed and acceptance of the strategy is growing. Secondly, it posits that hedge funds, in keeping with their respective financial size and available resources will continue to apply this strategy with three key objectives in mind, namely: (i) To unlock value for short-term profit gains; (ii) To support a quasi-long-only medium-term (circa. 7 years) investment diversification strategy; (iii) To acquire businesses for the building of conglomerate industrial groups of companies, i.e. forging “King Cong” funds.
For a more thorough introduction to hedge funds in general, readers are invited to read my earlier study titled:"The Challenge of reigning-in Hedge Funds through Regulation and the Need to improve Disclosure Requirements". the latter looks at:
1. Lack of transparency as a key feature of hedge fund investment
2. Benchmarking and Performance Measurement error
3. Risk management challenge presented by investing in hedge funds
4. Management Fees and their relation to performance and risk
5. Index funds & Fund of funds and their diversification advantages over hedge funds and other key topics
Inhaltsverzeichnis (Table of Contents)
- Chapter 1: Introduction
- Statement of problem
- Aims of the study
- Importance of the study
- Brief overview of the study
- Chapter 2: The history of hedge funds
- In the beginning
- Definition of a hedge fund
- Revival, again and again
- Summary
- Chapter 3: The evolution of the hedge fund industry
- Investor profile
- Hedge fund management and investment strategies
- Relationship with investment banks
- Summary
- Chapter 4: Shareholder activism and corporate governance issues
- History of shareholder activism
- Impact of hedge fund shareholder activism
- The Deutsche Börse case
- The McDonald's case
- The Medidep SA case
- What the future has in store
- Corporate governance under siege
- Shareholder activism challenged
- The future of shareholder activism for hedge funds
- The King Cong Funds
- Eddie Lampert's ESL
- Kennith Griffith's Citadel
- Stephen F. Feinberg's Cerberus
- Summary
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper investigates activist investing by institutional investors and hedge funds, exploring its impact on decision-making and corporate governance. It examines the growing acceptance of this strategy despite ongoing debates about its benefits to firm performance. Furthermore, it analyzes the objectives driving hedge funds' use of this strategy, particularly in the context of their financial size and resources.
- The history and evolution of the hedge fund industry.
- The rise of shareholder activism and its impact on corporate governance.
- Different investment strategies employed by hedge funds.
- The role of hedge funds in unlocking value and shaping corporate structures.
- The relationship between hedge funds and investment banks.
Zusammenfassung der Kapitel (Chapter Summaries)
Chapter 1: Introduction: This chapter introduces the burgeoning hedge fund industry, highlighting its rapid growth and exceeding $1 trillion in assets under management in 2005. It contrasts this success with the near-collapse of Long-Term Capital Management (LTCM) a decade prior, analyzing the contributing factors like excessive leverage, lack of transparency, and systemic risk. The chapter also points to a gap in academic literature defining hedge fund operations, focusing instead on performance analysis.
Chapter 2: The history of hedge funds: This chapter traces the history of hedge funds, from their origins with Alfred Winslow Jones's straightforward long/short strategy to their subsequent evolution and periods of revival. It delves into the defining characteristics of hedge funds and their repeated cycles of growth and challenges, setting the stage for a deeper understanding of their current landscape and practices. The chapter provides a concise overview of the historical context influencing the hedge fund industry.
Chapter 3: The evolution of the hedge fund industry: This chapter explores the changing profile of hedge fund investors, the diversification of investment strategies (including long/short equity, global macro, equity market neutral, event-driven, convertible arbitrage, fixed income arbitrage, and managed futures), and the increasingly close relationship between hedge funds and major investment banks. It analyzes how these factors have contributed to the industry's growth and its increasing influence on global financial markets.
Chapter 4: Shareholder activism and corporate governance issues: This chapter investigates the history and impact of shareholder activism, focusing on the role of hedge funds. It examines several case studies (Deutsche Börse, McDonald's, Medidep SA), illustrating how activist investing influences corporate governance and decision-making. The chapter also looks towards the future, considering the potential challenges to shareholder activism and the evolving strategies of hedge funds, including the emergence of "King Cong" funds aiming to build conglomerate industrial groups.
Schlüsselwörter (Keywords)
Hedge funds, shareholder activism, corporate governance, investment strategies, activist investing, Long-Term Capital Management (LTCM), leverage, risk management, King Cong funds, investment banks.
Frequently Asked Questions: A Comprehensive Language Preview
What is the overall focus of this document?
This document provides a comprehensive preview of a research paper investigating activist investing by hedge funds and its impact on corporate governance and decision-making. It covers the history and evolution of the hedge fund industry, various investment strategies, and the role of hedge funds in shaping corporate structures. Case studies are included to illustrate the impact of activist investing.
What topics are covered in the Table of Contents?
The table of contents includes an introduction, a chapter on the history of hedge funds, a chapter on the evolution of the hedge fund industry, and a chapter focusing on shareholder activism and corporate governance issues. The latter chapter features case studies of Deutsche Börse, McDonald's, and Medidep SA, and discusses the emergence of "King Cong" funds.
What are the key objectives and themes explored in the paper?
The paper investigates activist investing by institutional investors and hedge funds, exploring its impact on decision-making and corporate governance. It examines the growing acceptance of this strategy, analyzes the objectives driving hedge funds' use of this strategy, and considers the relationship between hedge funds and investment banks.
What are the key themes of each chapter?
Chapter 1 (Introduction): Introduces the hedge fund industry, its rapid growth, and contrasts this with the near-collapse of Long-Term Capital Management (LTCM). It highlights a gap in academic literature regarding hedge fund operations. Chapter 2 (History of Hedge Funds): Traces the history of hedge funds from their origins to their evolution and periods of revival, focusing on defining characteristics and cycles of growth and challenges. Chapter 3 (Evolution of the Hedge Fund Industry): Explores the changing investor profile, diversification of investment strategies, and the relationship between hedge funds and investment banks. Chapter 4 (Shareholder Activism and Corporate Governance): Investigates the history and impact of shareholder activism by hedge funds, using case studies to illustrate its influence on corporate governance and decision-making. It also looks at the future of shareholder activism and the rise of "King Cong" funds.
What are the main case studies discussed?
The paper includes case studies of Deutsche Börse, McDonald's, and Medidep SA to illustrate the impact of hedge fund shareholder activism on corporate governance and decision-making.
What are the key players or "King Cong" funds mentioned?
The paper mentions Eddie Lampert's ESL, Kennith Griffith's Citadel, and Stephen F. Feinberg's Cerberus as examples of "King Cong" funds aiming to build conglomerate industrial groups.
What are the key words associated with this research?
Key words include: Hedge funds, shareholder activism, corporate governance, investment strategies, activist investing, Long-Term Capital Management (LTCM), leverage, risk management, King Cong funds, and investment banks.
What is the significance of Long-Term Capital Management (LTCM)?
The near-collapse of LTCM is used as a contrasting example to the overall success of the hedge fund industry, highlighting factors like excessive leverage, lack of transparency, and systemic risk.
- Citation du texte
- LL.M. Russell Mutingwende (Auteur), 2006, Hedge Funds: The Protean Survivalists , Munich, GRIN Verlag, https://www.grin.com/document/86643
