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Activist investors roared back to double-digit returns in 2023 after a year of losses, with a stronger equity market and savvy stock picking fuelling their rebound, fund managers and their clients said.

More corporate battles appear to be in store as fresh capital is ready to flow into the sector and newcomers flirt with using tools made famous by veteran corporate agitators like Carl Icahn.

Activist investors, who push corporations to change leadership, streamline operations or put themselves up for sale, boasted an average 20.2-per-cent return last year, Hedge Fund Research data showed. In 2022, activists lost an average 16 per cent.

Some investors’ returns were even better with Mason Morfit’s ValueAct Capital posting a 39-per-cent return and Bill Ackman’s Pershing Square Holdings reporting a 27-per-cent gain.

Legion Partners Asset Management, which pushed for changes at Twilio among other companies, gained 35 per cent; health care-oriented Caligan Partners rose 37 per cent. Engaged Capital returned 29 per cent, Sachem Head Capital Management rose 24 per cent and Corvex Select Equity Fund rose 21 per cent, investors in the funds said. Anson Funds Management, a multistrategy fund that is building out its activism strategy, gained 18 per cent, an investor said.

Representatives for the firms declined to comment.

The average gain for activists trailed last year’s S&P 500 24-per-cent gain. But the average loss in 2022 was also not as sharp as the 18-per-cent dive for the S&P. Many hedge funds tell investors they will not beat markets on the way up but will protect capital on the way down.

“After a largely disappointing 2022, activists generally fared much better last year,” said Sebastian Alsheimer, a partner in law firm Wilson Sonsini Goodrich & Rosati’s shareholder engagement and activism practice. “They were helped by a rising stock market, but also deserve credit for deftly identifying targets.”

Investment bank Lazard data showed 252 new activist investor campaigns globally last year, up 7 per cent from 2022 and setting a new record for activity, as investors pressed more European and Asian companies to implement changes.

Activist investors targeted large household name companies, including entertainment giant Walt Disney Co., cloud computing company Salesforce Inc. and pharmaceutical giant Bayer Inc. as well as much smaller companies like Clear Channel Outdoor, Forward Air and, now called Beyond.

As interest-rate hikes and other factors slowing growth hurt some companies “activists successfully pushed for cost cuts, management changes and strategic alternatives,” said Jessica McDougall, a partner and chair of corporate governance and shareholder engagement at Longacre Square Partners. “Many boards didn’t realize until too late that it takes more than refreshing directors to offset down performance in today’s climate.”

Looking ahead to this year, investors are ready to push companies harder for change, lawyers, bankers and hedge-fund managers said. They noted that sometimes activists accelerate changes the board is already contemplating. Some investors said they were ready to commit fresh capital to activists on the view returns will remain strong with a pick up in deal-making.

Last year, a record 77 first-time activists initiated campaigns, up from 55 the year before, Lazard data showed.

“We expect significant activity in the smaller market cap space because of the relative underperformance compared to the large cap spectrum last year,” Wilson Sonsini’s Mr. Alsheimer said.

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