Wall Street's New Raiders

Last May, Icahn disclosed a 4.5 million-share position in Siebel Systems(SEBL).

Many smaller fish play a significant role, too, among them Pirate Capital, Steel Partners, Highfields Capital and Pershing Square Capital. The proliferation has created opportunity for smaller investors. Anyone who bought Wendy's when Pershing Square announced a stake in April was sitting on 26% gain on Friday after the restaurant chain raised its dividend, expanded a buyback program and announced the partial spinoff of its Tim Hortons unit. The moves were more or less forced by the activists' presence.

One reason for the growth of activist strategy is the decline of merchant banking on Wall Street. According to Charles Gradante, managing principal of advisory firm Hennessee Group, investment banks such as Goldman Sachs, Lehman and Lazard have been less inclined to take long-term stakes in public companies since going public themselves. And where investment houses once exerted influence as agents for mezzanine finance, that type of lending is now often handled by private equity funds.

Hedge funds have been able to join the fray as their cash piles have increased and investors grow more willing to tie up money for the long-term. Late last year, for example, Eric Mindich got $3 billion for his new hedge fund, a record start-up launch. The former Goldman Sachs star was able to impose investor lockup provisions and early withdrawal penalties that were previously unheard of in the hedge fund world. About one-third of the Mindich fund's strategy is supposed to be straight-up private equity, further blurring the line between trader and owner.

Still, most activist hedge funds remain oriented to short-term gains simply because they face the time pressure of their peers, a problem that private equity shops are immune from, says McConnell. Because they are generally disinclined to acquire companies outright (even Lampert shies away from buyouts), hedge fund activists have sometimes been forced into tactics that can smack of Barbarians at the Gate ruthlessness. More problematically, they are subject to the same entrenched disadvantages faced by any investor who wants to change a company without controlling it.