Activist investors account for a relatively smaller share of the private equity scene in Orange County and generally on the West Coast.
A list of the top 50 activist investors operating in the U.S., put together a few years ago by New York-based research group Conference Board Inc., includes five firms headquartered in California, none of which is in Orange County. The list has 28 New York firms, including Carl Icahn’s Icahn Associates Corp.; Pershing Square Capital Management LP, founded by William Ackman; and Elliott Management Corp., which is the largest shareholder of Costa Mesa-based Emulex Corp.
Elliott owned about 8% of the network systems maker’s shares as of late 2013 and had owned 11% about a year ago, which gave the firm room to inflict pressure. Emulex has made management and boardroom changes in the past year or so, in large part driven by pressure from Elliott and other activist shareholders.
“There’s been this significant capital flow into activist investing, and activists are mostly on the East Coast, which I think is an advantage for us,” said Glenn Welling, chief investment officer of Newport Beach-based Engaged Capital. “But I don’t think geography matters from the perspective of idea generation. That we are on the West Coast has nothing to do with the companies [that we invest in].”
John Heldman, founder and president of Newport Beach-based Triad Investment Management LLC, said he views activism in general as a “good thing,” since “there are a lot of boards and managements that, without a prod or a push, might not be encouraged to make decisions for shareholder versus management benefit.”
Triad focuses primarily on stock investments and doesn’t consider itself an activist. Heldman added that questions remain about activist funds’ stature and motives, including whether they are “constructive” activists, “with a meaningful investment and a long-term horizon,” versus being “in it for a quick pop in the stock price.”
Orange County skews toward fixed-income investments, Welling said, citing the influence of Newport Beach-Based Pacific Investment Management Co. and “all the people that were at Pimco who have now become offshoots.”
Pimco is the world’s largest bond fund manager, with nearly $2 trillion in assets. Its flagship Total Return Fund, managed by Bill Gross, has about $237 billion in assets. Local investment firms run by Pimco alumni include Irvine-based Armored Wolf LLC, founded by John Brynjolfsson; David Hinman’s SW Asset Management LLC in Newport Beach; and San Juan Capistrano-based Rimrock Capital Management LLC, founded by David Edington and headed by Chief Executive Paul Westhead.
“OC is interesting that way,” Welling said. “It’s less vibrant in the equity space. There are very few large equity investors in Orange County. We certainly wish it was more vibrant. And we’re doing our best to sort of start a trend there.”
