Chapter 18

Funds of Hedge Funds Stake Out Activists

In 2003, Sebastian Stubbe launched Landmark Investors LLC, a $66 million activist fund of hedge funds.

Every year he accepts visits from 15 to 20 activist hedge fund operators. Each manager is hoping Stubbe will include his or her funds in the pooled portfolio of activist hedge funds he operates. He carefully picks Landmark's underlying activist hedge funds based on each manager's ability to understand their own investments. Stubbe says he wants to feel that activist managers understand their investments as well as or better than the CEOs operating the corporations in their portfolio. Not an easy task, to say the least.

Many don't pass the test. Of the 15 to 20 activists Landmark meets with every year, the fund will invest with only one.

His investment approach is part of a growing trend in activism: Funds of hedge funds, pools of assets allocated to hedge funds, are devoting a growing amount of their capital to activist managers. The strategy is transforming the investment landscape. Hundreds of millions of dollars are going to insurgents, beefing up their assets under management, and making it easier for them to engage a greater number of companies, many of which are larger than ever before.

For many individuals with fewer assets to invest, funds of hedge funds may be the only way they can allocate capital to a private, professionally managed activist investment vehicle. Government regulators prohibit investors with lesser means ...

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