Active investors may have met their match

THE stockmarket slump has hit activist hedge funds particularly hard, raising the question of whether shareholder activism can survive a down market.

Activist hedge funds specialise in taking aim at troubled companies. The core idea is for the fund to push for a new strategy that will turn the company around or, more commonly, to instigate some event that crystallises value, like a spinoff or a sale. In the rising stock market of the last five years, this was a wonderful strategy.

Acquisitions were hot and the exits were easy. Mistakes in picking targets were covered up by gains in the market.