Inside Activist Hedge Funds | Chief Investment Officer

Dan Loeb, Third PointWhile the strategies deployed by activist hedge fund managers differ, new research from Novus reveals the outcomes are generally positive—at least in terms of generating returns.

The report detailed the performance and holdings of three prominent activist hedge fund managers: ValueAct Capital, Pershing Square Capital Management, and Third Point.

ValueAct—founded in 2000 by Jeffrey Ubben—was described by Novus as “quieter, more under-the-radar” than its activist peers. However, its “close relationship with big institutional investors” means it can “push for meaningful change with smaller investments.”

Since 2001, Novus found that ValueAct has significantly outperformed the S&P 500. Ubben’s fund grew from a $200 million portfolio in 2001 to more than $17 billion in 2015, the report said, aided by an annualized return of 32.5% since 2010.

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Novus said this result was driven largely by skill, with stock picking and position sizing playing a significant role in driving returns.

While Ubben keeps out of the public eye, Pershing Square’s Bill Ackman is more outspoken, with the report naming him “an influential investor and one of the few pure activists in the market.”

Under Ackman’s leadership, Pershing Square outperformed the S&P 500 in the last ten years by 222%—a “substantial” lead on other activist managers, according to Novus.

Compared to other activists, Pershing Square is more concentrated and illiquid, and invests in larger names—“the perfect combination for high risk/high reward,” the report declares.

Third Point, meanwhile, is “surprisingly” liquid at 93%, making manager Dan Loeb one of the most liquid activists, according to Novus.

This liquidity is due to Third Point not being a pure activist manager, and instead investing significantly in passive trades, the report said.

According to the research, Third Point has been favoring large cap companies more recently, evidenced by the average market capitalization of stocks in its portfolio increasing since 2001. These large cap stocks have also been the fund’s best-performing picks, Novus said, pointing to an ability “to generate alpha in large-caps, and less so anywhere else.”

Also performing? Third Point’s more illiquid investments, the report found. Should the portfolio become less liquid—and more activist—it would likely perform better, Novus concluded.

Consultancy and outsourced-CIO (OCIO) provider Verus Advisory has agreed to merge with San Franscisco-based Strategic Investment Solutions (SIS), uniting under the Verus brand.

The combined firms’ client assets will top $380 billion—the bulk of it in traditional consulting mandates, not discretionary management—according to company documents.

The firms are merging in order to more effectively compete with other consulting and OCIO providers, said Verus CEO Jeffrey MacLean in a release.

No layoffs or departures are anticipated as a result of the merger. SIS CEO Barry Dennis will serve as a managing director at Verus, the firms said.

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“SIS clients have been aware of our search for a partner that allows us to maintain superior, customized client service and to plan for my eventual succession,” Dennis said.

Verus, rebranded from Wurts & Associates in April, manages $21 billion in outsourced capital, and advises on $90 billion as a consultant, according to figures Verus published in July.

The firm’s clients include Delta, which recently chose the firm as an OCIO partner alongside UBS Asset Management for its multi-billion dollar pension.

SIS, based in San Francisco, brings with it advisory relationships on $267 billion in pension, nonprofit, and family office assets.

OCIO services are more in demand than ever, according to a report earlier this year by Cerulli Associates, but the field is also becoming more competitive.

According to the report, investor demand for comprehensive services at a low cost has put pressure on new and less-resourced entrants to the OCIO industry, with the result of an “eventual shake-out or consolidation.”

In April, Goldman Sachs Asset Management agreed to purchase OCIO provider Pacific Global Advisors from Pacific Life Insurance Company. Pacific Global Advisors, which specialized in corporate pensions, had full discretion of over $2.84 billion in retirement assets, according to the 2015 Chief Investment Officer OCIO Buyer’s Guide.