Jana Partners Sells 20% Stake To Neuberger Business--2nd Update

By Juliet Chung And David Benoit 

A unit of investment manager Neuberger Berman bought a 20% stake in hedge fund Jana Partners LLC, the latest sign that activist investors are gaining mainstream acceptance.

The deal, with Neuberger's Dyal Capital Partners, values New York-based Jana at roughly $2 billion, according to a person familiar with the matter. Jana, which manages more than $11 billion, is known for buying stakes in companies and then seeking to work with management as it pushes for change.

Activists have long been Wall Street outsiders, criticized as brash speculators more interested in a quick profit than the long-term success of their corporate targets. But in recent years they have attracted large flows of money from institutions as some firms have dialed back the vitriol and delivered performance outpacing other hedge funds.

The stake sale gives Jana, one of the biggest activist funds, a stamp of approval from an established investment manager as well as more money to invest. The stake is passive, meaning Dyal won't have a say in Jana's operations, according to a Jana investor letter.

Dyal is a New York-based private-equity business that is one of the most active buyers of stakes in hedge funds. Such purchases are becoming more common in the hedge-fund world, with firms including Blackstone Group LP and KKR & Co. snapping up stakes using either their own money or their clients'.

Minority owners can earn a stream of income from their share of funds' management and performance fees, viewed as attractive in a low-interest rate environment.

"This investment will result in significantly enhanced, top to bottom alignment with our investors," Jana said in the investor letter distributed Wednesday.

Only a portion of Jana's investments is activist. The fund typically looks to work with management and boards behind the scenes, but it will fight publicly. The firm was founded by Barry Rosenstein in 2001 with $35 million.

Part of Jana's appeal to Dyal, according to a person familiar with the deal, is its approach to activist investing, which aims to be collaborative.

Jana's successful recent investments include its stakes in specialty retailer PetSmart Inc. and supermarket chain Safeway Inc., which both reached deals to sell themselves after Jana took stakes. The firm last month took an activist position in Computer Sciences Corp., which Jana has said should explore a potential deal.

Jana's flagship Partners fund last year returned 3.71%, and its Nirvana fund, a version of Partners that borrows more money to amplify wagers, returned 5.84%, according to a person familiar with the matter. Those results bested a broader "event-driven" index for this style of hedge funds, which returned 1%, according to data tracker HFR.

In 2014, an index of activist hedge funds rose 4.8% compared with a 3.6% gain for the average hedge fund, according to HFR. Both groups trailed the S&P 500, which returned 13.7% including dividends.

Mr. Rosenstein, 56 and known for his devotion to yoga and Bruce Springsteen, last year joined the board of Walgreens Boots Alliance Inc. in a settlement that gave him the right to name one additional member to the pharmacy giant's board and a veto on a third seat down the road. That amount of influence was viewed as a coup for an investor with just more than 1% of the stock.

All of the proceeds from the Dyal deal will be invested into Jana's funds, the letter said, with some being invested on behalf of Jana employees, an arrangement that gives them what amounts to a retention bonus to stay at the firm.

Dyal, run by former Lehman Brothers executive Michael Rees, last year took a 20% stake in the smaller Blue Harbour Group LP, which styles itself as a friendly activist.

"We're excited about our relationship with Jana," said Mr. Rees, who declined to comment on future deals or fundraising efforts.

Write to Juliet Chung at [e-mail] and David Benoit at [e-mail]

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