Hedge fund activists are becoming more involved in the life of companies where they own a stake. When the company is a closed-end fund, some go as far as recommending changes in the investment strategy. The latest example is David Nierenberg, who runs Nierenberg Investment Management and who owns 7.8% of the Korea Equity Fund ( KEF).

In a recent 13D filing with the Securities and Exchange Commission, Nierenberg urged Korea Equity to focus on micro- and small-cap growth companies in Korea or merge with the Korea Fund ( KF). In a letter to William Barker, the lead director, Nierenberg says he wants those changes to take place before a shareholder meeting in the spring.

Nierenberg earlier this year opposed another activist, Harvard University, in its fight to push fund manager Nomura ( NMR) to liquidate the fund. Nierenberg's position prevailed, and the fund continued to trade. But in his letter, Nierenberg complains about the Korea Equity's return to double-digit discounts from net asset value and offers drastic measures to improve the fund's valuation.

"If this $70 million fund wants to stay in business, it needs to pick a differential strategy," Nierenberg said. Small stocks in Korea offer an attractive opportunity, he notes, as the country is the "most wired nation in the world." Currently, KEF is more focused on large-cap stocks.

If Nierenberg doesn't get his way, he will contact the 10 largest shareholders to take "the appropriate course of action," he told TheStreet.com. Nierenberg says that in this scenario, he hopes to win the backing of City of London Asset Management, the largest shareholder, which has about 25% of the shares.

Seat at the Table

Activist hedge fund Appaloosa Management, which owns 9.3% of Delphi's ( DPHIQ) stock, is not happy about shareholder representation in the aftermath of the auto-part maker's bankruptcy. David Tepper, the fund's manager, said he has petitioned the bankruptcy court for the establishment of an equity committee. That won't change the fact that bondholders have priority on claims and assets over shareholders, but to Tepper, the fight is worth it because it is a matter of fairness. " Kmart, Mirant, Adelphia and Texaco, all those bankruptcies had equity committees," he argues.

Highfields Capital, the Boston-based activist hedge fund run by Richard Grubman, is keeping the heat on Mellon Financial ( MEL). Highfields has been urging the company to separate its asset management and custodial segments, saying the share price is being punished because by the existence of the latter. It also says there's evidence that Mellon tried to acquire the investment-management arm of Merrill Lynch ( MER) last year, but that the deal fell apart because of a dispute over who would run the combined outfit.

"We fear that the transaction did not proceed either because of Mellon's refusal to allow the combined operation to be run by a Merrill executive, or its unwillingness to accept the compelling economics of separating Mellon's newly expanded investment management operations from its processing business," Grubman writes to Mellon CEO Martin McGuinn. "If this is correct, your shareholders should be outraged that such transaction was not consummated."

A Mellon's spokesman declined to comment. He wouldn't confirm any effort to acquire Merrill Lynch Investment Management.

In his letter, Grubman argues that Mellon's shares have been up only 10% from the time McGuinn became CEO in the end of 1998 through Nov. 30, lagging its competitors. T. Rowe Price ( TROW) and Franklin ( FRAF.OB), for instance, have both doubled over that period, while BlackRock ( BLK), since its IPO in 1999, is up almost 700%.

Gold Gang

It's fashionable to be a contrarian, but many hedge funds remain momentum players at heart and can't resist a trend when they see it. Gold is an example. The precious metal had a huge 2005, in part because of fund speculation.

"I've seen some macro hedge funds participating in the rally as well as commodity trading advisers and trend followers," says Standard & Poor's hedge fund analyst Justin Dew. For many, gold plays against currency depreciation and offers an insurance against financial turmoil.

"Some macro players are betting that gold will move to $800 an ounce long term," says Charles Gradante, principal at the advisory firm Hennessee Group. But other hedge funds are already betting on a correction. Dew believes that macro hedge funds, which make anticipatory bets, will take profits off the table sooner than CTA managers, who "follow trends" and only react when the trend reverses itself according to their models.

Not everybody likes the precious metal. "Gold is an investment with a negative yield and no discernable intrinsic investment value, whose price is determined mostly by fear -- fear of inflation, war and paper money," wrote Barton Biggs, founder of Traxis, in his latest book, HedgeHogging .
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