#bill ackerman

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Old man vs younger man in a fight who should win?

Old man vs younger man in a fight who should win?

Photo by Victoria Borodinova on Pexels.comBefore the pandemic was ever a thought in our News anchor’s list of headlines…there was a really surprisingly heated argument between two majorly influential investors; Bill Ackman of Pershing Square and Carl Ichan.

A Herbalife type product – blended vitamins and natural oils Photo by Binoid CBD on Pexels.comBill Ackman was featured in a documentary…

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[deniscollins]

Hedge Fund Titan’s Surefire Bet Turns Into a $4 Billion Loss

If you were a major investor, how would you respond to a company developing a new business model consisting of acquiring pharmaceutical companies and significantly increase product prices due to market domination: (1) implement the strategy or (2) don’t implement the strategy? Why? What are the ethics underlying your decision?

A little over two years ago, William A. Ackman, one of Wall Street’s brashest and most self-assured hedge fund managers, was on top of the world. A billionaire before he hit 50, he was generating double-digit gains for his investors and raking in hundreds of millions in fees for his firm and himself.

Hailed as a master investor, he clinched his highflier status in the fall of 2014 by paying $90 million with some friends to buy the penthouse at One57, a 13,500-square-foot aerie in Midtown Manhattan overlooking Central Park. He didn’t plan to live there — it was an investment property — but until he sold it, the apartment would make a good party space, he told The New York Times.

If Mr. Ackman were a stock, that might have been his peak.

Today, things are very different for him. His company’s performance is way down, he is in the midst of an expensive divorce, and on March 13, he and investors in funds run by Pershing Square Capital Management swallowed a $4 billion loss on Valeant Pharmaceuticals International, a beleaguered drug company.

As bad bets go, it was one for the record books. Valeant was a big Pershing Square holding. In May 2015, Mr. Ackman said Valeant’s acquisition strategy made it “a very early-stage Berkshire,” referring to Berkshire Hathaway, Warren E. Buffett’s investment vehicle. But only a few months later, Mr. Ackman and his investors began riding Valeant’s shares all the way from $262 to $11, driven both by rival investors who had bet against Valeant’s shares and former fans who dumped the stock as bad news emerged.

As much as Mr. Ackman and investors in his $11 billion firm would like to close the book on Valeant, they cannot do so quite yet. That’s because of a Valeant-related lawsuit in a federal court in California contending that he and his firm violated securities laws in 2014. According to the plaintiffs, Pershing Square secretly acquired a stake in the pharmaceutical giant Allergan based on nonpublic information from Valeant that it intended to mount a takeover bid.

This is not just any lawsuit. Damages in the case may be $2 billion, as noted by the judge who certified the litigation as a class action Wednesday. Mr. Ackman’s lawyers, who in court hearings have put potential damages at less than $1 billion, are vigorously contesting the case and contend there is no liability.

Defendants in the matter, which has not received a lot of publicity recently, are Mr. Ackman, his funds, Valeant and J. Michael Pearson, the company’s former chief executive.

The case is entering a crucial stage. Court documents indicate that Mr. Ackman and Mr. Pearson have either been deposed by lawyers for the plaintiffs or will be questioned under oath soon. The documents also show that Mr. Ackman must set aside 12 hours to answer questions.

Mr. Pearson was the architect of Valeant’s business model, in which the company acquired drugmakers and jacked up prices on their products. Mr. Ackman, 50, is one of the country’s best-known activist investors — taking large positions in companies and trying to use that weight to influence their direction and decision-making. Initially, Mr. Ackman praised Mr. Pearson’s strategy of acquiring rivals rather than developing drugs internally.

Mr. Ackman declined to comment on the mistakes he made in Valeant or the lessons he gleaned from the loss.

In a statement, Pershing Square noted that the firm “has generated billions of dollars of profits for its investors and double the stock market returns since the inception of the firm inclusive of our large loss on Valeant.”

“Unfortunately,” it continued, “we cannot guarantee that every one of our investments will be successful. We regret the loss which occurred due to Valeant board and management decisions made prior to our active engagement with the company. Over the past year, as members of the new board of directors, we have taken important steps to stabilize the company, including replacing prior management, which positions the company for a better and more profitable future.”

Due Diligence Falters

The stock market is a humbling place, where even astute investors make many mistakes. Mr. Ackman is by no means the only money manager to have erred in assessing a company’s prospects.

But as loosely regulated hedge funds have grown both in number and in power recently, a cult of personality has arisen. Unlike mutual funds, which employ ranks of portfolio managers, hedge funds like Pershing Square are dominated by the people who run them. Investors in Mr. Ackman’s firm are essentially placing a bet on him, his acumen and his discipline.

Some investment managers — Mr. Ackman’s peers and rivals — say that his Valeant wager raises questions about his investment style. His failure to limit his losses on the trade and his unusual public comments as a Valeant director, in which he cheered the company’s management and strategies even as its business was collapsing, are viewed as troubling.

D. Ellen Shuman is the veteran manager of Edgehill Endowment Partners, which oversees $650 million in nonprofit money. She evaluates money managers for her clients and said she had avoided investing in Pershing Square.

Why? “It is all about Bill Ackman,” she said in a recent telephone interview. “It is not about his investors or the companies in which he is investing.”

As confident a money manager as ever walked Wall Street, Mr. Ackman has acknowledged that his investment in Valeant represented a breakdown in his firm’s due diligence — the research it does about the companies it backs. That concession came last spring when he was called to testify before a Senate committee on Valeant’s drug pricing practices.

In an email to The New York Times, Pershing Square said, “Valeant is an anomaly in an outstanding record over nearly 14 years.”

But while his funds notched an exceptional 40 percent gain in 2014 — much of it attributable to the Allergan trade that has drawn the lawsuit — Mr. Ackman’s funds lost 13.5 percent last year and 20.5 percent in 2015. Through March 15, Pershing Square is flat.

Other hedge funds have turned in poor performances as well in recent years. And it is not clear whether or to what extent Mr. Ackman’s investors have reacted to his firm’s losses by fleeing. Pershing Square declined to disclose redemption figures.

As is typical with hedge funds, Pershing Square has rules governing client redemptions. In many cases, clients can withdraw only 12.5 percent every quarter over two years; this prevents a run on the operation amid a mass of redemptions. And several years ago, Mr. Ackman astutely raised permanent capital with a stock offering in Europe, another cushion against a run on the firm.

Still, his Valeant flop naturally brings to mind some of his previous high-profile mistakes. These include investments in the retailers Target and J. C. Penney, where he installed a chief executive who quickly crashed. And his protracted $1 billion crusade against Herbalife, a maker of health supplements, has lost money for his investors.

Finally, there’s his previous hedge fund, Gotham Partners, which ran into trouble when clients redeemed and its illiquid investments could not be sold quickly. He wound down that firm in 2003, and founded Pershing Square later that year.

VERY LONG ARTICLE CONTINUES