Catching the Conscience of Kings: How Activists Align with Mutual Funds

Abstract

Do hedge fund activists tailor their campaigns to mutual fund family's preferences? And if so, does the strategy work? Using supervised machine learning on the fund family's proxy voting choices, I estimate their preferences. I find that activists align proxy communications with the preferences of fund families that own a larger share in targeted firms. Activists learn from interactions with fund families and align their campaigns better in subsequent proxy fights. Tailored campaigns enjoy improved shareholder attention, more votes, and a greater likelihood of success. My findings suggest that activism helps push shareholders' implicit agendas.

Keywords: Hedge Fund Activism, Shareholder Preferences, Text Analysis, Machine Learning

JEL Classification: G23, G32, G34