Several of the U.S.’s largest activist investment firms — like Icahn Associates and ValueAct Capital — are getting pummeled by cratering oil markets.
It appears their willingness to attempt a sea change in business comes with a lot of pain when markets turn bearish. Activist investors tried to change the philosophy and tenor of businesses by gobbling up minority shares in company assets, but because they suffer from short-term price swings, activists usually avoid vulnerable commodity markets like the plague.
That all changed in 2014. The specter of $100 per barrel oil that year seemed to outweigh risks associated with oil markets, but now, with oil trading around $30, these activists are losing their shirts.
Thirteen of the most prominent activist investors with the most to lose in the energy sector have suffered $9.2 billion in losses in 2015, according to hedge fund data firm Symmetric.IO.
“This is a cyclical industry. Everyone knows it comes back. But not everyone has the time to wait it out,” Kai Liekefett, a partner at law firm Vinson & Elkins, told reporters Friday.
Liekefett added: “The problem is that activist hedge funds have to answer to their own investors, and the question is whether they will give them the time.”
“It is possible that certain activist investors in oil and gas stocks misjudged the severity and speed of the drop in oil and gas prices,” Osmar Abib, global head of oil and gas banking at Credit Suisse, added.
While well-healed activist investors like billionaire financier Carl Icahn can limp alongside a struggling oil market without loosing their cool, smaller, glutted oil markets ream more capital sensitive investors.
Orange Capital, which had a portfolio worth about $1.3 billion as of Sept. 30, is shuttering its doors, due in large part because of its shares in Canadian oil and gas driller.
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