What Is An Activist Investor?
What exactly is an activist investor? An activist investor is a stockholder of a business who attempts to utilize his or her equity ownership in the business to achieve certain objectives. The objectives could be anything from political action to better environmental policies. Activist shareholders aim to influence other investors by exercising their right to vote or influencing the management of the company.
Most traditional shareholders belong to a minority of total shareholders and therefore are not entitled to have a vote when important matters are being decided at the Annual General Meeting. Because they are not part of the voting group, these traditional investors are not entitled to have a vote on matters that affect their interest directly. These include the election of officers of the corporation. Agency makes them targets for those who wish to sway other investors with their own agendas for the company's future.
Activist investing refers to the use of shareholder activism to obtain greater access or more control over publicly traded companies. As new businesses are created, these shareholders become interested in capitalizing on the company's opportunities. One way of gaining control is through what is called "activative" investing. In this method, shareholders are encouraged to speak out against certain business practices that they feel could harm the value of the stock. These tactics include a general shareholder campaign to call on the management of publicly traded companies to do something about an issue.
Another way of using activist investor strategies is through what is called a "hedge fund activism". When this type of strategy is used, the goal is to make a profit by taking advantage of the volatility of a particular market and capitalizing on short term movements in price. By taking advantage of short-term price fluctuations, these hedge fund activists can buy shares of stock that are less than five percent over-priced.
There are many different types of what is an activist investor strategy. These strategies can be implemented by any number of individuals who have an interest in maximizing the potential return on their investment. Some of these activists are personally interested in a particular company, while others are interested in institutional investments. They may also have an interest in political issues that affect a target company or the companies that may be owned by a given entity.
One type of what is an activist shareholder strategy is what is called "activating". This involves speaking out in an effort to change the voting or dividend policy of a publicly traded company. The purpose of this type of activism is to convince a corporation or shareholder to change a policy that does not benefit the company financially or for the long-term. For Agency , an activist shareholder may be concerned about the lack of dividends being paid out by a corporation. If this shareholder is able to bring enough attention to the issue through various media sources or via letters and emails, it may be possible to sway a board of directors to change the policies of the corporation. Sometimes, a change in policy can be very difficult to implement, especially if the targeted company has a large amount of stock ownership.
Another type of what is an activist investor strategy is what is called "ceding". This involves using the services of an individual or group of individuals to take a specific company or entity into bankruptcy court. If a successful bid to eliminate debt is made, this is known as "bailing out". Agency use what is known as "ceo tools", which allow them to create voting resolutions and other proposals that can be passed by a majority of shareholders if they are supported by enough people. Agency of an activist ceo tool would be a call to action to "call on the CEO to resign" in the case of negative news reports about a company or financial quarter.
Activist investing is becoming more popular among hedge funds, venture capitalists, and angel investors who are looking for ways to get involved in distressed companies in order to help make money on their own personal portfolios. However, many professional investors are also now seeing this as a valid form of trading for the financial analyst. This is because many of these activists actually end up buying shares of the companies at below book value, making it impossible for the corporation to become shut down.