Alpha Buying: The Power of Activist Investors in Driving Company Performance

For more than two decades now, the Schedule 13D filing has been a quiet beacon for value hunters searching the markets for opportunity. When an activist investor files this document with the SEC, they are not merely declaring ownership of a significant stake. They are announcing intent. And in the world of investing, intent from the right party can be worth its weight in gold.

Let us be perfectly clear about something.

The initial market reaction to these filings, typically a price jump of 5 percent to 10 percent, is merely the opening act. The real performance, the one that builds genuine wealth, unfolds over the subsequent years. This is where patient capital finds its reward.

The evidence supports this assertion overwhelmingly. Academic research from Brav, Klein & Zur, Greenwood & Schor, and numerous others have demonstrated that companies targeted by activist investors tend to outperform the broader market by 10 percent or more in the year following a 13D filing.

That is the excess return above what the indexes earn.

When these campaigns culminate in a sale or breakup of the company, returns can surge even higher, sometimes exceeding 20 percent above market performance. This is not speculation. This is documented history.

Consider what happens when seasoned activists like Carl Icahn, Paul Singer, or Jeff Smith file these documents. Their 13D is not bureaucratic paperwork but a starting signal for substantial change.

Whether through cost reduction, divestiture of underperforming assets, or simply holding management accountable for years of mediocre results, these activists serve as catalysts for value creation that might otherwise remain dormant for years, possibly decades.

The Canadian Pacific Railway saga illustrates this perfectly.

When Bill Ackman filed his 13D in 2011, it set in motion a transformation that saw the stock more than triple by 2014. This exceptional return was not about market excitement surrounding the initial filing. It was about installing appropriate leadership, implementing operational efficiency, and executing strategies that previous management had resisted.

Such campaigns transform patient capital into significant wealth.

Not every activist effort succeeds, of course. The JCPenney situation serves as a sobering reminder of this reality.

However, the aggregate data reveals that thoughtful, persistent activist involvement typically unlocks substantial value.

This is particularly true in traditionally sleepy sectors such as real estate, industrial conglomerates, and insurance, where management often operates without significant external pressure.

As a value investor my perpetual search is for two critical elements: a margin of safety and a catalyst for recognition.

Activist 13D filings frequently provide both.

When a proven activist with a strong track record targets a company trading at a substantial discount to book value or replacement cost, you are not looking at speculation. You are looking at a defined roadmap to value realization.

This approach requires selectivity and patience. Not every filing warrants attention.

The identity of the filer, their stated objectives, and their historical track record matter tremendously. Equally important is allowing sufficient time, often 12 to 24 months, for the investment thesis to develop.

Those seeking immediate gratification might be better served elsewhere.

For investors focused on building wealth methodically, however, studying activist campaigns and their 13D filings offers a compelling opportunity.

A recent example worth monitoring involves Converium Capital, which recently disclosed increased share purchases in Franklin Street Properties FSP, a real estate investment trust focused on office properties.

Converium Capital operates as a Canadian asset manager employing multiple strategies to generate positive, uncorrelated returns across various market environments.

Their approach focuses on distressed and event-driven opportunities globally across the capital structure.

Franklin Street Properties, trading on the NYSE under the ticker FSP, concentrates primarily on suburban office properties in U.S. Sunbelt and select core markets.

Headquartered in Massachusetts, the REIT has historically acquired institutional-quality office buildings in markets characterized by strong demographic trends and robust business environments.

The portfolio currently emphasizes properties in Texas, Colorado, Georgia, North Carolina, and Florida.

Traditionally, FSP focused on mid-to-large Class A office buildings with stable tenancy and long-term lease agreements.

However, the significant decline in office demand following the COVID-19 pandemic necessitated a fundamental strategic reassessment.

Beginning in 2021, FSP initiated an aggressive asset disposition program designed to reduce leverage, enhance liquidity, and improve operational flexibility. The company pivoted from its previous acquisition-driven growth model toward portfolio optimization and shareholder capital returns.

This disposition strategy has been central to FSP’s transformation. Since 2021, the company has sold over $1 billion in office assets, applying proceeds primarily to debt reduction while supporting modest share repurchases and dividends.

 Management has targeted non-core or underperforming properties, particularly those with high vacancy rates or significant upcoming lease expirations.

While this approach has successfully reduced leverage, it has concurrently resulted in significant revenue and funds from operations (FFO) declines. Both portfolio size and cash flow have contracted substantially, raising legitimate questions about long-term scalability and market competitiveness.

The financial performance reflects these challenges.

Occupancy rates remain under pressure, hovering in the mid-70 percent range, below pre-pandemic levels.

Management has implemented enhanced broker incentives and tenant improvement packages to stimulate leasing activity, though market conditions remain difficult.

FSP maintains a modest quarterly dividend, reflecting a cautious capital allocation approach. FFO per share continues to decline, and the REIT trades at a substantial discount to net asset value, reflecting investor skepticism regarding both the broader office market recovery and the company specific value proposition.

The depressed valuation, elevated general and administrative costs relative to industry peers, and disappointing stock performance have attracted activist attention from Converium and other shareholders.

These investors advocate for enhanced capital returns, governance improvements, and potentially complete liquidation of assets.

The board has responded with several shareholder-friendly initiatives, including governance reforms, improved disclosure practices, and formal consideration of strategic alternatives.

Management has expressed openness to exploring additional asset sales, joint ventures, and other liquidity-enhancing measures, though stopping short of endorsing complete liquidation or company sale.

FSP’s future remains closely tied to suburban office market recovery and successful execution of further asset sales without excessive harm to its income base.

The REIT faces continued challenges from remote work trends, rising interest rates, and competitive leasing environments.

However, activist involvement and the significant discount to net asset value may provide both a valuation floor and catalyst for meaningful change.

Franklin Street Properties represents a deeply discounted, asset-rich REIT undergoing strategic transformation. Investors should closely monitor further asset sales, leasing performance, and activist developments, as these factors will likely determine whether substantial value can be unlocked in coming quarters.

For patient value investors, this situation exemplifies the potential opportunity presented by activist involvement. The deep discount to asset value provides a margin of safety, while activist pressure serves as a potential catalyst for recognition of that value. As with all such situations, the most significant returns will likely accrue not to those reacting to headlines, but to those who understand the long-term implications and possess the patience to allow the transformation to unfold.