By Juliet Chung And David Benoit
A unit of investment manager Neuberger Berman bought a 20% stake
in hedge fund Jana Partners LLC, the latest sign that activist
investors are gaining mainstream acceptance.
The deal, with Neuberger's Dyal Capital Partners, values New
York-based Jana at roughly $2 billion, according to a person
familiar with the matter. Jana, which manages more than $11
billion, is known for buying stakes in companies and then seeking
to work with management as it pushes for change.
Activists have long been Wall Street outsiders, criticized as
brash speculators more interested in a quick profit than the
long-term success of their corporate targets. But in recent years
they have attracted large flows of money from institutions as some
firms have dialed back the vitriol and delivered performance
outpacing other hedge funds.
The stake sale gives Jana, one of the biggest activist funds, a
stamp of approval from an established investment manager as well as
more money to invest. The stake is passive, meaning Dyal won't have
a say in Jana's operations, according to a Jana investor
letter.
Dyal is a New York-based private-equity business that is one of
the most active buyers of stakes in hedge funds. Such purchases are
becoming more common in the hedge-fund world, with firms including
Blackstone Group LP and KKR & Co. snapping up stakes using
either their own money or their clients'.
Minority owners can earn a stream of income from their share of
funds' management and performance fees, viewed as attractive in a
low-interest rate environment.
"This investment will result in significantly enhanced, top to
bottom alignment with our investors," Jana said in the investor
letter distributed Wednesday.
Only a portion of Jana's investments is activist. The fund
typically looks to work with management and boards behind the
scenes, but it will fight publicly. The firm was founded by Barry
Rosenstein in 2001 with $35 million.
Part of Jana's appeal to Dyal, according to a person familiar
with the deal, is its approach to activist investing, which aims to
be collaborative.
Jana's successful recent investments include its stakes in
specialty retailer PetSmart Inc. and supermarket chain Safeway
Inc., which both reached deals to sell themselves after Jana took
stakes. The firm last month took an activist position in Computer
Sciences Corp., which Jana has said should explore a potential
deal.
Jana's flagship Partners fund last year returned 3.71%, and its
Nirvana fund, a version of Partners that borrows more money to
amplify wagers, returned 5.84%, according to a person familiar with
the matter. Those results bested a broader "event-driven" index for
this style of hedge funds, which returned 1%, according to data
tracker HFR.
In 2014, an index of activist hedge funds rose 4.8% compared
with a 3.6% gain for the average hedge fund, according to HFR. Both
groups trailed the S&P 500, which returned 13.7% including
dividends.
Mr. Rosenstein, 56 and known for his devotion to yoga and Bruce
Springsteen, last year joined the board of Walgreens Boots Alliance
Inc. in a settlement that gave him the right to name one additional
member to the pharmacy giant's board and a veto on a third seat
down the road. That amount of influence was viewed as a coup for an
investor with just more than 1% of the stock.
All of the proceeds from the Dyal deal will be invested into
Jana's funds, the letter said, with some being invested on behalf
of Jana employees, an arrangement that gives them what amounts to a
retention bonus to stay at the firm.
Dyal, run by former Lehman Brothers executive Michael Rees, last
year took a 20% stake in the smaller Blue Harbour Group LP, which
styles itself as a friendly activist.
"We're excited about our relationship with Jana," said Mr. Rees,
who declined to comment on future deals or fundraising efforts.
Write to Juliet Chung at juliet.chung@wsj.com and David Benoit
at david.benoit@wsj.com
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