What is an Activist Investor?
An activist investor invests in a company for the purpose of changing or influencing the company's decisions.
How Does an Activist Investor Work?
Carl Icahn, known as a corporate "raider" in the 1980s, is one of the most famous activist investors. He buys a substantial portion of a company's and then pressures management to take actions that are sometimes uncomfortable but ultimately in the best interest of the shareholders.
Accordingly, when news hits that Carl Icahn has invested in a company, the 's value typically rises not only because the sees that a sophisticated investor believes the company is undervalued, but because investors know Icahn would a of pressure on the company's management to run the company more efficiently and more in the interests of the shareholders (rather than the management).
Activist investors may have a variety of agendas, however -- changing the company's environmental actions, changing the company's product lines, changing the company's compensation plans, etc.
One way to tell whether a company has been or is being targeted by activist investors is to review its SEC Form 13-D filings, which disclose when an entity has acquired 5% or more of a company's shares.
Why Does an Activist Investor Matter?
Corporations that operate for a money doing so, the other shareholders benefit too (this effect is nicknamed the ).