From Activist Insight
Not many activists run as many as five proxy contests a year, still less when their team consists of two members. Jeff Eberwein is no ordinary activist, however. His Lone Star Value Management has the most newly disclosed positions in 2014 according to Activist Insight’s count, making entering the activist investing game look easy.
“People who see my resume would scratch their heads based on my previous history,” says Eberwein of his ‘conversion’ to activism. As an equity analyst at Schroders and then Citibank, followed by stints as a portfolio manager at Viking Global and Soros Fund Management, he would seem an unlikely activist. “But people who know me well know I like detailed models and getting my hands dirty. Activism was a natural progression.”
After leaving Soros, Texan-born Eberwein became an activist, amassing a number of positions that he has now folded into Lone Star. Now he’s managing over $90 million, and targeting a portfolio of 15-20 stocks in the small-cap segment of the market – an area activists say is rife with poor boards, poor management and inertia.
The range and variety of Lone Star Value’s filings is impressive. He’s looking to take on staff at his Connecticut HQ this year, and outsources some of his research, but how does Eberwein manage to find so many candidates for his board slates? “One of the benefits of working on Wall Street for twenty years is getting to know a lot of ex-CEOs. Industry expertise is important to a slate, but I like to have a mix of people who are good at finance, or dealing with shareholders, or on the operating side. Those are the best teams.”
The job is made easier by a strategy that is still rare among activists – partnering up with other investors. So far, Lone Star has run joint campaigns with Engaged Capital LLC at Rentech Inc. and JCP Investment Management LLC in The Pantry Inc., a North Carolina chain of convenience stores. “A lot of activism is not exactly rocket science,” Eberwein told Activist Insight recently. “It’s often about working harder than the other side, and two activists can cover more ground than one.”
Recently, media attention has started to focus on activists who go into stocks with different agendas, or who appear to be competing. Securities regulations often deter activists from publicly expressing sympathy with each others’ objectives, for fear of being labelled as an investor group and being hit with restrictions on how quickly they can divest their stakes.
Eberwein’s experience has been of a friendlier community. He says he has talked extensively with one big-name activist pushing a company to form a REIT for its real estate about his campaign at The Pantry, and has been given names of people who specialize in creating and managing REITs. As activists with swelling assets go on to target larger stocks, they often pass on investment ideas to smaller funds, and vice versa, according to Eberwein.
As proxy season begins to take off, Eberwein seems relaxed about the work ahead. “Some [proxy contests] will settle, others will go to a vote.” Even longer-term, he is optimistic, saying that to maintain his portfolio he needs just five-to-ten ideas a year, an easily-achievable target. “In small-cap land, someone is always underperforming because of a bad board.”