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Activist Investors Crushed By Oil Crash

Activist Investors Crushed By Oil Crash

They may end up being right, but they were all way too early.

Activist investors are that special breed of hedge fund managers known for their aggressive forays into situations few others would touch (especially if much, much debt can be issued) usually demanding management, business or board changes. And while sometimes they make a killing thanks to their aggressiveness, other times they themselves are crushed.

Like this time.

Activist investment in the energy space has been nothing short of a total disaster: as Reuters reports, those "brave enough to have ventured into the volatile energy sector are paying a heavy price for their courage, stuck with hefty paper losses and no near-term recovery in sight." Related: Storage Problems Could Cause A Rout In Oil Prices

Among the more prominent names pounded in recent months are Corvex Management, Elliott Associates and ValueAct Capital - they are among the largest and most prominent activist firms that have seen the value of their energy holdings tumble in step with sliding crude prices and remain exposed to the price rout.

Southeastern Asset Management, an investment management firm and occasional activist, has seen the value of its energy bets fall $2.7 billion in the last year, which include holdings in Chesapeake Energy Corp and Consol Energy.

Corvex's $1 billion holding in natural gas pipeline company Williams Companies worth around 14 percent of the firm's total portfolio, represents the largest current exposure of any activist fund to a single energy stock, according to quarterly filings. Corvex's stake in Williams - which has an agreement to be purchased by pipeline rival Energy Transfer - lost $1.1 billion over last year, filings show. Corvex declined to comment.

The second largest exposure is Elliott's $863 million stake in oil and gas company Hess Corp which is worth around 10 percent of Elliott's portfolio, according to filings. The stake was valued at as much as $1.7 billion in the third quarter of 2014, filings show. Elliott declined to comment.

Fir Tree Partners lost $259 million, Symmetric.io data show, among various energy investments including Williams.

ValueAct, a shareholder in Halliburton since 2012, disclosed last January that it bought a stake in Baker Hughes, saying at the time that its belief in the deal was underpinned by the drop in oil prices. The two holdings together comprise nearly 10 percent of ValueAct's total portfolio and lost a combined $656 million in value in the course of last year, Symmetric.io data show. ValueAct declined to comment. Related: Why OPEC Production Freeze Could Pave The Way For Actual Cuts

They are not the only ones: Thirteen activist investors with the largest fund exposure to the energy sector have suffered a combined $9.2 billion in unrealized paper losses in 2015, according to quarterly filings analyzed by hedge fund data firm Symmetric.io.

But nobody's combined loss is as big as that of Carl Icahn: the sum of the one-year losses includes a $2.8 billion drop in the value of Carl Icahn's on seven energy industry investments, Symmetric.io data shows. While that is the biggest loss for any activist investor, Icahn invests his own money and can ride out the oil downturn for as long as he wants. Others do not have that luxury.

One has already shut down: Orange Capital, headed by a person who some say spends more time engaging in twitter spats than managing money, is already shutting down in part because of its exposure to a Canadian oil and gas driller.

"This is a cyclical industry. Everyone knows it comes back. But not everyone has the time to wait it out," said Kai Liekefett, a partner at law firm Vinson & Elkins who is head of its activism practice. "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."

The problem for hedge funds, many of whom have investors who can demand their money back on a quarterly basis, was that many just had not foreseen such a long, steep fall in crude prices even after they began their slide in June 2014. "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," said Osmar Abib, global head of oil and gas banking at Credit Suisse. Related: The Billion Dollar Biofuel That Fell 2.7 Billion Gallons Short

Of course, by now everyone knows that the meaning of the word "hedge" in "hedge fund" is mostly for show, and not to actually, you know, hedge in case something unanticipated happens... like the biggest commodity rout in history.

Here are the casualties:

By Zerohedge

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