Jeffrey Ubben warns on let-down of activist investment boom The founder of the fund that forced its way on to Microsoft's board is warning investors piling into similar activist hedge funds that they could be disappointed, as more companies pre-empt activist attacks with shareholder-friendly policies. Jeffery Ubben, who runs the $12bn hedge fund ValueAct Capital, said that soaring stock markets were also tempting more funds to set themselves up as "drive-by activists" focused on trying to make short-term gains. His comments, in an interview with the Financial Times, come as investors put record sums into activist hedge fund strategies around the world, despite returns that have fallen far short of major equity markets this year. According to Hedge Fund Research, activist funds had returned 14.4 per cent globally to the end of November, versus a 27 per cent rise for the S&P 500 and 18 per cent for the FTSE All-World, although the average masks wide disparity between the best and worst performing funds. Inflows have also been accelerating, with funds attracting $7.2bn of new money in only the first nine months of the year, surpassing the 2006 full-year record of $6.5bn. "Activism is all the rage, but in many ways it may be a really bad time to invest with an activist," Mr Ubben said. "It is a case of, "the water's OK, so come on in." There are a lot of funds becoming activists because the markets are going up and they feel safe. The change is that institutional investors are willing to speak up, the change is that independent directors are willing to take the call Jeffrey Ubben, ValueAct founder Mr Ubben said that many companies were proactively adopting many aspects of the activist playbook for undervalued companies, improving their share price performance before hedge funds alight on them as targets. He highlighted 3M as an example; the manufacturing conglomerate is expected to buy back $22bn of its shares over five years. "Activism is in the midst of a secular change," Mr Ubben said, arguing that corporate governance and shareholder engagement had improved across the board. The change is that institutional investors are willing to speak up, the change is that independent directors are willing to take the call. The media celebrate an activist's victory without necessarily pointing out that there is someone on the other side who took leadership. ValueAct was founded in 2000 with the aim of taking long-term positions in undervalued companies and pressuring management behind the scenes for financial and business restructurings and operational improvements. The fund became one of Microsoft's largest shareholders earlier this year and within the space of a week in August the software giant had announced the retirement of Steve Ballmer, its chief executive, and agreed to accept a ValueAct nominee as a board director. Without addressing Microsoft directly, Mr Ubben said such situations presented an opportunity for activists and boards to work closely together. "You enter a new era with a new management who does not own any of the prior decisions," he said. "You are all working together and you can "sync up" with the new management team at the outset."