A recent story in USA Today: “Apple becomes a hedge fund target.” It seems that George Soros doubled his stake in Apple to 66,800 shares. Carl Icahn revealed earlier with a tweet that he is building up a big position as well.

Soros and Icahn are just the latest in the wave of large hedge funds and their billionaire founders buying stock in public companies. What’s news is that they are no longer confining their moves to smaller companies. According to USA Today, “The percentage of companies that activists are targeting valued at more than $1 billion is 29%. If that pace holds it would be a 45% jump from 2012, FactSet data show.”

At this point you may be reading to satisfy your curiosity about the big egos and big bucks involved. Ackerman and Soros bought into JC Penney, and now Ackerman has left the board. Soros is facing Ackerman on Herbalife, where Soros went long and Ackerman went short. Fascinating; boys and their toys. But if you stop to reflect for a minute, you may realize this is much more significant than rich folks playing. In fact, I claim, we are entering the Third Revolution in the history of public companies, thanks to the much-maligned hedge funds. A much-needed revolution, too.

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In “VCs aren’t [the] only ones able to show you the money” John Shinal, USA Today’s New Tech Economy columnist, reported that US venture-capital (VC) investment in 2012 fell to $29.7 bil­lion from $35.1 billion in 2011. Three years after the financial collapse, VC-backed investments haven’t returned to pre-great-recession levels.

In itself, this is not surprising. Some signs of recovery notwithstanding, little has returned to pre-recession levels in the US economy. The more-troubling news, though, is that the number of acquisitions of VC-backed companies declined by a whopping 21% last year. As Mr. Shinal ob­served, this is the second-lowest total in the past seven years, exceeding the lowest (in 2009) by only six deals. That cannot be attributed to the effects of the financial crisis alone.

Most readers are probably raising their eyebrows right now. Didn’t VC-backed Facebook go public last year in the largest IPO in US history? But Facebook was the exception. The most-dismal news for VCs is that the average internal rate of return for US VC funds over the past ten years strained to reach a dreary 6.1%. In comparison, the Nasdaq rose 10.3% and the Dow Jones, 8.6%. True, a lot of the rise happened in the last three years only as the stock market took off, but one would still expect the masters of the universe to beat stodgy old public corpora­tions!

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A recent article in The Economist about the private equity (PE) industry brought to light the one unique outfit in this dismally uncreative field: Clayton, Dubilier & Rice.

The PE industry playbook calls for leveraged buy-outs, piling debt on companies’ balance sheets and ruthlessly cutting costs to ensure the piled-on debt is serviced first and foremost. Operations, the debt-paying machine, come next; then, just milk every cent of remaining value. It’s not a going concern; it’s a paying concern, and once the payments are done the concern should be sold off, hopefully at a profit.  The problem is that quite often milking the companies for quick payback results in their operations falling apart. As The Economist says, “Operational improvements in a portfolio company [of a private equity firm] has often meant little more than promising colossal bonuses to sitting chief executives if they meet ambitious growth targets.” The carcasses of companies brought to their knees by PE decay all over the globe.

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