Prospects looking better for activist hedge funds after 2011 rough ride

Despite poor performance so far this year, activist hedge funds are in a position to take advantage of the opportunities panic-selling and a tougher refinancing market will create in the medium term.

After posting some of the most dramatic falls in 2008, activist hedge funds took advantage of the market recovery and lower investor tolerance to instigate change, producing strong returns in 2009 and 2010.

With markets significantly down in 2011, activists are back in the red. However, tighter bank lending and low equity valuations present a ripe opportunity for activists, particularly for those focusing on ­operational change.

Activist funds were among the hardest hit in 2008. The HFRX Activist