M&A plays can backfire when a company refuses to heed activists' calls for a sale, or a buyer fails to show up.
Starboard Value LP, for example, suffered a 28 percent loss on its investment in Depomed Inc after the U.S. drugmaker explored a sale without success, according to research firm 13D Monitor.
Another concern is that the pace of of U.S. deals slowed down in the first quarter.
A slowdown in M&A would make activists revert to other strategies, such as seeking more operational fixes or share buybacks - though these demands usually yield smaller investment returns.
Voce's Plants said activist hedge funds should avoid an investment strategy based solely on calling for company sales.
"It seems like a lot of funds are doing that now and I think it's very risky," he said. "You need a plan B and C and a long-term plan to own the business."
This article was provided by Reuters.