For a Wall Street star once dubbed the “Baby Buffett,” Bill Ackman is having a pretty bad year.
Huge bets on companies like Valeant and Herbalife have delivered steep losses to the flamboyant billionaire’s Pershing Square hedge fund.
With some $12bn under management, Pershing lost around 20% in the first half of this year, securities filings show.
And everything suggests that the second half won’t be much better, after Ackman’s crusade against nutritional supplement direct sales company Herbalife, which he shorted as he labelled it a pyramid fund, was rebuffed on Friday.
Agreeing with Ackman’s longtime rival in Wall Street big-time activist investing, Carl Icahn, the Federal Trade Commission ruled the Herbalife is not a pyramid operation and, while forcing it to pay out $200mn to injured distributors, said the company could stay in business.
Herbalife shares jumped 9.9%, generously benefiting Icahn, who holds 25%.
It’s not clear how Ackman, 50, fared financially at the apparent end of his three-year siege of the company, in which Pershing took a large short position, betting Herbalife shares would sink.
“This is a total victory for Herbalife shareholders and a total defeat for the short camp,” said Timothy Ramey, an analyst at Pivotal Research Group.
Icahn, the doyen of Wall Street activists who famously squared off with Ackman in a long televised argument over Herbalife in 2013, declared victory, saying the younger Ackman had gotten his research on the company wrong.
“A significant part of my investment success is directly tied to our in-depth investment research and understanding of often complex and unique issues facing companies,” he wrote in a statement.
“Unlike many of those that ‘shorted’ Herbalife, we did not rely on one or two research papers prepared by non-experts,” he said.
Ackman did not concede, even if the market moved against him.
He noted that the Federal Trade Commission (FTC) had ordered changes to the way Herbalife does business, and that eventually those will undermine the company’s business model.
“We expect that once Herbalife’s business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse,” Pershing said in a statement.
The stylishly coiffed, Harvard grad golden boy of the exclusive New York hedge fund billionaires club, Ackman has a history of taking contrarian stakes and then going very public with them.
After Pershing made a billion-dollar bet in 2012 that Herbalife’s shares would tumble, he publicly labeled the company a Ponzi scheme, comparing it to Enron, the high-flying energy group that plunged into bankruptcy in 2001, and the Bernie Madoff fund collapse seven years later.
Putting his credibility on the line, Ackman inundated media and the Internet with appearances and videos arguing his case that Herbalife would collapse.
The Pershing short gambled on Herbalife shares falling from $47.
But they have traded well above that level since February and finished at $65.25 on Friday.
Ackman has admitted that carrying the short bet has cost the fund $20mn a year.
Ackman’s seeming emotional commitment to his positions was also apparent in his investment on Valeant.
He took a huge position on the future of the Canadian drugmaker as it expanded via aggressive takeovers, only to see the shares plummet in scandals over Valeant’s business model and accounting methods.
After surging to a peak of over $263 in the middle of 2015, Valeant’s shares have plunged to below $23, while Pershing has clung to its sizeable stake in the debt-laden company.
Ackman’s style and recent record has not impressed some on Wall Street.
“We believe Ackman typifies the activist behaviours that destroy, rather than create, long-term shareholder value,” David Trainer and Sam McBride from investment research house New Constructs said in a note.
Joseph Fahmy, managing director at Zor Capital in New York, tweeted a similar view.
“I don’t feel bad for Ackman.
I feel bad for the people who piggy-backed his trade without doing their own due diligence,” he said.