Activist Investor

In order to change how a publicly traded company is run, an activist investor, often a specialized hedge fund, purchases a sizeable minority position within the business.

The objectives of the activist investor might range from being as basic as offering management advice to being as ambitious as compel a procurement of the business, divestments or restructuring, or maybe the removal of the board of directors.

Activist investors rarely purchase complete or majority holdings in corporations, in contrast to non-public equity firms that buy and reorganize businesses so as to profit after they are sold again.

Instead, they appeal to other stockholders and company insiders through open communications and closed-door meetings. An activist investor may initiate a takeover attempt to elect new directors if such efforts are unsuccessful in getting the corporate to suits their demands.

Activist hedge funds, as against institutional investors, also are more liable to employ confrontational strategies, like poison-pen letters to management, unfavorable public reports, and proxy battles to get rid of incumbent directors.

An effective market response to the agency problem, which occurs when agents (in this case, company managements) have the chance and means to counterpoint themselves at the expense of clients (in this case, shareholders—a dispersed group with limited power to safeguard its ownership interests—is the increase of activist investors, per some, has been the increase of activist investors.