Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Chapter 7

Hedge Specialization

Good or Bad?

Richard Lashley invests in thrifts and banks and nothing else. Since 1995, he's instigated about 13 public activist campaigns, mostly to encourage banks and thrifts to merge. But that represents only a small part of the story of Lashley's activist endeavors. He has met with many more management teams behind the scenes, making recommendations and demands.

PL Capital LLC, the activist hedge fund Lashley operates, is based in Naperville, Illinois, a small, affluent town outside of Chicago with roughly 130,000 people—not exactly a major financial center. But from there Lashley and his partner John Palmer have turned a small $25 million hedge fund into a much bigger one with $150 million in assets under management in just a little over 10 years.

Unlike many other activists that throw their efforts around a number of different industries, PL Capital's strategy is to purchase only concentrated, large positions in savings and loans banking institutions. PL Capital expects to engage management and press for changes to unlock value at a select few companies. At any one time there are likely to be roughly 40 large stakes in the hedge fund's portfolio. Parts of their strategy may resemble tactics embraced by other activist hedge funds but their investment vehicle's focus on thrifts and banks sets them apart.

So far, business has been good. The fund reported average annual returns of 18 percent a year since 1996. And even though their historic returns ...