Does Hedge Fund Managers’ Industry Experience Matter for Hedge Fund Activism?

Abstract

We study whether fund managers’ industry experience is an important source of value creation in hedge fund activism. We find that the targets of industry-expert fund managers realize higher activism announcement returns and better operating performance, particularly when fund managers’ industry expertise is more valuable for targets. These targets also engage in more focused acquisition and divestiture activities in industries where fund managers have experience, allocate more employees to these industries, and cut investments more in the post-acquisition period. The superior performance of targets of industry-expert fund managers is robust to controlling for the endogeneity concern and the attrition bias.

Keywords: Hedge fund activism, Hedge fund manager, Industry experience, Acquisition, Target, Announcement return, Operating performance

JEL Classification: G14, G23, G30, G34