Hedge Fund Activism

Hedge fund activism is the effort by hedge funds to affect the policies of a firm to augment the firm’s performance. This is accomplished by obtaining an equity stake and becoming a significant (but not majority) shareholder with the ultimate goal of mitigating some form of agency problem. Hedge funds are asset funds that pool investments from accredited (i.e., sophisticated, individuals and institutional) investors and are often highly leveraged. They typically use complex and risky investment strategies, involving various forms of financial engineering, and are largely unregulated. They are also extreme cases of a lack [Page 1710]of transparency, since they may not reveal their investment positions—even to their own investors. This entry examines the history of hedge fund activism as well as its efficacy and ...