Business

Hedge fund ‘wolf packs’ back on the prowl

They’re back and hungrier than ever.

Hedge fund “wolf packs” — a controversial investing phenomenon that last surfaced in 2006 during the run-up to the financial crisis — are making a comeback.

Their reemergence is especially noticeable in the world of activist investing, where corporate agitators push for mergers, asset sales and other changes that could lead to a surge in the stock price.

Sotheby’s, for example, is facing heat from at least three hedge funds each waving their own paddle with ideas on how to boost the venerable auction house’s shares.

Months after an investment by Nelson Peltz’s Trian Partners, Dan Loeb’s Third Point and Mick McGuire’s Marcato filed 13D notices on Sotheby’s. Such notices serve as a red flag that an investor with a stake of at least 5 percent may make waves.

“It’s not surprising that several wolves are chasing the weakest bison in the herd,” said Tom Briggs, a securities lawyer who wrote a white paper on activist “wolf packs” in 2007.

Just like before, there is “ a limited range of [investment] opportunities,” said Briggs, citing lofty stock prices and record low interest rates.

The comparisons to 2007 are striking. Stocks have soared to new heights this year as investors — seeking more than the paltry returns of fixed-income vehicles — pour cash into equities.

The Dow Jones industrial average closed above 15,000 for the first time in May and is up 16 percent this year through Tuesday.

The benchmark index closed above 14,000 for the first time in October 2007, up 14 percent at the time, just a few months after Biggs’ paper was published in “The Journal of Corporation Law.”

Meanwhile, the hedge-fund industry keeps getting bigger, which means more money chasing fewer opportunities.

Total hedge fund assets hit $1.9 trillion this year, the industry’s highest level since its peak in 2007, when assets topped $2.1 trillion, according to tracker Barclay Hedge.

Apple is yet another focus of wolf-pack hedge funds.

The iPhone maker hiked its dividend and increased its stock buyback program to $60 billion this year after coming under pressure from investors, led by hedgie David Einhorn, to return some of the company’s massive cash hoard to shareholders.

Fast forward a few months and activist investor Carl Icahn is pushing for — you guessed it — more money for investors. The legendary activist met Apple CEO Tim Cook on Monday to push for a $150 billion buyback.

The wolves are also prowling around Morgans Hotel Group, a boutique hotel chain that owns the Delano in Miami, drawn by signs that it could be an attractive acquisition target.

Last month, Sahm Adrangi of Kerrisdale Capital Management, which holds a 4 percent stake in Morgans, said he plans to nominate a new slate of directors for 2014, citing concerns that the current board isn’t interested in a sale.

Investment house 40 North Management followed suit with a 13D just a few weeks later.

“It’s safety in numbers,” said corporate governance expert Charles Elson. “The more numbers you have, the more influence you have.”