They're young, they're hungry, and they're on the way to being the next name-brands of activist investing.
Corporate executives and boards are getting to know—often begrudgingly—names like Scott Ferguson, Mick McGuire and Jesse Cohn. They and a handful of other 30- and 40-something hedge fund managers are already running billions of dollars and agitating for change at big public companies such as Bank of New York Mellon, EMC, and Zoetis.
"Several of the newer guys have notched impressive engagement wins," said Bryan Schneider, managing director at $12.7 billion hedge fund investor EnTrust Capital. "As they continue to grow their capital base and reputation there's no reason they can't become the next (Bill) Ackman or (Carl) Icahn."
Can you guess the top six rising stars of activism? Meet them here
The next generation's rise comes as activism is surging overall.
Seventy-one corporate campaigns have been announced already this year, which is on pace to set an annual record, according to data compiled by FactSet. The highest annual total was 373 campaigns in 2007.
The resurgence of hedge fund activism
| Year | Campaigns announced at US companies |
|---|---|
| 2005 | 189 |
| 2006 | 290 |
| 2007 | 373 |
| 2008 | 284 |
| 2009 | 148 |
| 2010 | 190 |
| 2011 | 196 |
| 2012 | 193 |
| 2013 | 212 |
| 2014 | 247 |
| 2015* | 71 |
Activist investors typically build up a position in the stock of a public company. Then they announce the stake, often via a public filing, along with their vision of how to improve the business, such as selling a unit, firing the CEO or buying back stock.
That process often includes the investor taking a seat (or several) on the board to speed up change. If the company objects, it can lead to a proxy contest—a usually contentious situation where both sides try to convince other shareholders to vote on their competing proposals.
Regardless, the aim of activists is to increase the value of the company's shares, in turn making their investors money—and themselves rich.
Those tactics have produced strong returns of late, leading to a surge in capital from investors.
After many investors pulled their money during the financial crisis, activist hedge funds grew their assets under management 269 percent to almost $120 billion between 2009 and 2014, according to Hedge Fund Research data cited by the Alternative Investment Management Association.
The annualized return of activist hedge funds from 2005 to 2014 was 8.12 percent, according to industry data and analysis provider eVestment. That compares to 5.62 percent for all hedge fund strategies and 7.67 percent for the S&P 500.
"Activist hedge funds have increasingly come into favor with investors for several years, driven by strong performance, dynamic individuals and high profile campaigns to improve shareholder returns," Hedge Fund Research said in a recent report.
The next generation
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Four of the most important new names in activism took master classes with the strategy's deans, Ackman and Icahn.
Icahn's top protégés are Keith Meister, who runs $8 billion Corvex Management, and Alex Denner, who runs $639 million Sarissa Capital Management.
Meister, 41, rose to be chief investment officer at Icahn Capital before he launched Corvex in late 2010. Meister's firm has grown quickly and now manages more money than any of his rising star peers, thanks to backing from Soros Fund Management, Blackstone Group and others.
Recent targets include American Realty Capital Properties, energy group Williams Companies and Fidelity National Financial. All three company stocks are up this year.
A smaller activist with Icahn heritage is Denner, 45, who focuses on healthcare at Sarissa. Denner, 45, has a background in biomedical engineering from a doctorate at Yale University. He worked at Icahn Capital from 2006 to 2011 following a brief stint as a healthcare portfolio manager at prominent hedge fund firm Viking Global Investors in 2005 and 2006.
Greenwich-Connecticut-based Sarissa was founded in 2013 and had grown to manage $639 million at the end of February. Denner has favored a small group of larger bets on healthcare-related companies; recent targets include Ariad Pharmaceuticals, Vivus and Astex
Performance has been positive but subdued: Sarissa's main fund gained 7.9 percent from May to December 2013, 9.6 percent in 2014, and 2.5 percent in 2015 through February, according to a person familiar with the situation.
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Two more up-and-coming activists got their start at Pershing Square.
One is Ferguson, the first investment staffer hired by Bill Ackman when starting the now well-known hedge fund shop in 2003. The Harvard MBA rose to become a partner before leaving to found Sachem Head Capital Management in 2012.
Ferguson, 40, now runs about $3 billion. A prominent recent target was animal health company Zoetis, an investment that Ackman joined in November with an even larger stake. Pershing Square won a board seat in February with the promise of another appointment soon. The stock is up about 25 percent over the last 6 months.
Pushed up by Zoetis and another player, CDK Global, Sachem Head gained about 20.5 percent net of fees last year, according to a person familiar with the situation
Read MoreAckman's 'animal' spirits alive in latest Zoetis venture
Another Ackman protégé is McGuire. The former Pershing Square partner founded Marcato Capital Management in 2010. Based in San Francisco, 38-year-old McGuire has grown his shop to manage $3 billion. Marcato has taken on big companies recently, including Bank of New York Mellon, Sotheby's, and Lear.
Marcato has generated double-digit returns every year since its inception except for 2014, when it returned 5.3 percent. The fund up about 2.4 percent this year after a big gain in February.
Read MoreBNY Mellon CEO Hassell has got to go: Activist McGuire
