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Who is an activist investor?

Who is an activist investor?

Activist investors buy enough voting shares to influence the decisions of a company, sometimes for political or moral reasons, sometimes for purely financial reasons.

Activist investors can act alone or in groups, but their goal is to acquire enough shares of a company’s equity to influence the company’s decisions. Activist shareholders may need as little as 10% of shares to sway corporate governance.

They may use letters and other means of pressuring the board of directors, or they may buy up a seat on the board of directors. Activists tend to make headlines when their goals are political and moral, such as demanding that the company divest interests in a particular country, or adhere to more stringent environmental standards.

There are also many activist investors whose goals are to take struggling companies and make them more efficient and profitable. This may entail restructuring the compensation for the officers and upper management of the company.

According to some sources, hedge funds that invest in activist-targeted companies have generated returns above market averages, implying that activist investors are forcing complacent companies to make positive changes.

In the past, activist investors were bashed as “corporate raiders” who engaged in hostile takeovers to satisfy their own agendas, but the increasing popularity of activist tactics and the good it does in many cases has quelled the negative press to a large degree.

Benjamin Graham, one of the founders of value investing in the United States, launched what is now known as the first activist investor campaign in 1929, operating under the belief that the administration of corporations was in the service of the shareholders of a corporation, and eventually forced the Northern Pipeline to distribute millions of dollars in dividends that were previously held on the books of the business in the form of railroad bonds and other securities.

Activist investors are important players in the Mergers and Acquisitions space.

Keywords: value investing, voting shares, board of directors, proxies, corporate raiders, Mergers and Acquisitions (M&A), hostile takeover, stringent, Northern Pipeline, active investing,