what is an activist investor 
an activist investor typically a specialized hedge fund buys a significant minority stake in a publicly traded company in order to change how it is run the activist investor s goals may be as modest as advising company management or as ambitious as forcing the sale of the company divestitures or restructuring or replacing the board of directors unlike private equity firms that buy and restructure companies in order to profit when they are resold activist investors seldom acquire full or majority stakes 1 instead they use public communications and private discussions to win over other shareholders and company insiders when such efforts fail an activist investor may pursue a proxy contest to elect new directors in order to force the company to meet their demands understanding activist investorsactivist investors are sometimes called shareholder activists a term also used to describe those lobbying companies to improve working conditions for the overseas employees of their contractors or backers of a dissident board slate elected to fight climate change 23however many activist investor campaigns seek only to maximize shareholder value and most of those are the work of hedge funds specializing in the unique mix of public pressure behind the scenes lobbying and business expertise required unlike the public pension funds and mutual funds that also engage in activism at times activist hedge funds may hold highly concentrated stakes and supplement them with additional leverage from derivatives like stock options to offset the considerable cost of such campaigns in contrast with institutional investors that sometimes turn to activism after owning a disappointing investment for years activist hedge funds typically buy a stake in an underperforming company shortly before calling for change and hope to profit from the resulting turnaround and price appreciation 4in contrast to institutional investors activist hedge funds are also more willing to use confrontational tactics from poison pen letters to management and unflattering public reports to proxy fights seeking to oust incumbent directors the rise of activist investors has been described as an effective market response to the agency problem which arises when agents in this case company managements have the opportunity and the means to enrich themselves at the expense of clients in this case shareholders a diffuse group with limited powers to safeguard its ownership interests 5