What is an 'Activist Investor '

An activist investor is an individual or group that purchases large numbers of a public company's shares and/or tries to obtain seats on the company's board with the goal of effecting a major change in the company. A company can become a target for activist investors if it is mismanaged, has excessive costs, could be run more profitably as a private company or has another problem that the activist investor believes it can fix to make the company more valuable.

BREAKING DOWN 'Activist Investor '

One indication that a company may have become a target for activist investors is the filing of SEC Form 13D, which must be filed when an investor purchases 5% or more of a company's shares.

Private equity firms, hedge funds and wealthy individuals are types of entities that might decide to act as activist investors. Many well-known activist shareholders, such as Carl Icahn and Nelson Peltz, engage in their business activities through their holding companies or hedge funds.

Carl Icahn

Carl Icahn is the founder of Icahn Enterprises, a diversified holding company that owns many of the investments that Icahn makes. In the past, Icahn has taken positions in companies such as Yahoo Inc., Netflix Inc. and the Clorox Company. One of Icahn's more notable investments was in Apple Inc.; he bought 4.7 million shares of the company and pushed for a $150 billion share buyback. On June 27, 2016, Xerox Corporation announced it was putting an Icahn associate on its board of directors.

Bill Ackman

Bill Ackman is the founder and chief executive officer (CEO) of the Pershing Capital hedge fund. Pershing has taken positions in Target Corporation and Wendy's Company. Ackman's more well-known moves include a short position in Herbalife Ltd. and his big bet on troubled drug company Valeant Pharmaceuticals International Inc. In 2003, Ackman partnered with Icahn for shares of Hallwood Realty, a deal that resulted in Ackman suing Icahn over profits from the share sale.

David Einhorn

David Einhorn is the founder and president of Greenlight Capital, a hedge fund he's managed for 20 years. Two of Einhorn's more well-known plays include shorting Lehman Brothers and Allied Capital Corporation. In May 2016, Einhorn announced that Greenlight had taken a $60 million stake in Yelp Inc.

Dan Loeb

Dan Loeb is the founder of the $10 billion hedge fund Third Point Partners. In 2012, Loeb took a position in Yahoo and eventually gained a seat on its board of directors. In 2013, Loeb announced that his company was the largest shareholder in Sotheby's. Third Point also has sizable positions in Baxter International Inc. and Ligand Pharmaceuticals Inc.

RELATED TERMS
  1. Icahn Lift

    The Ichan Lift is the name given to the rise in stock price that ...
  2. David Einhorn

    David Einhorn is a hedge fund manager known for his short selling ...
  3. Acting In Concert

    Acting in concert is a slang term for when parties undertake ...
  4. Absolute Return Index

    The absolute return index is used to compare the absolute returns ...
  5. Rolling Hedge

    A rolling hedge is a strategy for reducing risk that involves ...
  6. Two And Twenty

    A type of compensation structure that hedge fund managers typically ...
Related Articles
  1. Financial Advisor

    This Is What Carl Icahn's Portfolio Looks Like (IEP)

    Read about some of the holdings in Carl Icahn's portfolio. Learn about his activist campaigns against companies that he believes are performing poorly.
  2. Investing

    Where Does Carl Icahn Keep His Money?

    Learn about where Carl Icahn keeps his money. Read about how a number of his investments in energy companies lost significant value in 2015.
  3. Investing

    Billionaire Icahn Trimmed Xerox, AIG, and More: 13F Filing

    The billionaire activist investor Carl Icahn trimmed his stake in American International Group last quarter.
  4. Investing

    Could Your Company Be A Target For Activist Investors?

    Find out why certain companies are targeted by these investors.
  5. Investing

    How Is Trump’s New Advisor Carl Icahn Investing? (IEP, HLF)

    So where did Icahn invest in Q3? Were there any surprises for his $19.8 billion portfolio? Based on the most recent 13F forms submitted to the SEC we can investigate Icahn’s latest stock activity. ...
  6. Managing Wealth

    Carl Icahn's Investing Strategy

    Buying up failing investments and turning them around helped to create the "Icahn lift" phenomenon.
  7. Investing

    If Carl Icahn Lost 20% in 2016, What Hope is There?

    If iconic billionaire Icahn loses that much, are hedge funds pointless?
  8. Investing

    Ackman and Icahn Battle Over Herbalife

    Tense words arise as Icahn ups his stake in the troubled multi-level marketing company.
  9. Investing

    Icahn Says He's Made $1 Billion on Herbalife Bet Against Ackman

    A five-year clash of hedge fund titans has come to an end over Herbalife. Icahn 1 (billion), Ackman 0.
  10. Investing

    Clorox: An Activist Investment Analysis (CLX)

    Read about the high-profile battle between The Clorox Company and billionaire activist investor Carl Icahn, who had three offers repelled by the Clorox board.
RELATED FAQS
  1. A Hostile Takeover vs. Friendly Takeover

    Learn about the difference between a hostile takeover and a friendly takeover, and understand how proxy fights and tender ... Read Answer >>
  2. Do hedge funds pay dividends?

    Learn how investors can earn dividends from publicly traded hedge funds, and identify a couple of the industry's big players ... Read Answer >>
  3. Can mutual funds invest in hedge funds?

    Learn about mutual fund portfolio management techniques and mutual funds' ability to invest in hedge funds, as well as new ... Read Answer >>
Hot Definitions
  1. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  6. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
Trading Center