It has been a cruel summer, with lots of leverage, for Bill Ackman and his Per(i)shing Square hedge fund.
After starting off the year with an AUM of $18.3 billion following a solid 2014 in which Pershing Square returned 40% mostly on the back of Ackman's aggressive - and questionably illegal [7]- activism involving Valeant, payback arrived with a levered vengeance, and after rising 10.1% through the end of July, pushing Ackman's AUM to $20.2 billion, the past two months have been absolutely brutal for the last remaining "prominent" hedge fund manager (we profiled the performance of some of his key peers: David Einhorn, Dan Loeb and Barry Rosenstein yesterday [8]).
Ackman may have hoped the pain would end in August when the fund lost nearly $2 billion in AUM, sliding 9.2% net, but September was a total bloodbath, and saw Pershing Square report one of its worst quarters in history outside of the financial crisis, tumbling by 12.5%, bringing the total loss over the past two months to a whopping -22%, the YTD drop to -12.6%, and the firm's AUM to $16.5 billion, a loss of nearly $4 billion in just the past two months, and the lowest it has been since early 2014.
And while virtually every stock of the fund's 11 long holdings tumbled in September (anywhere from Zoetis to Platform Specialty Products), it was the 23% plunge in Ackman's biggest holdings, Valeant where he owns nearly 20 million shares, that was mostly responsible for the collapse. The decline would have been even worse had it not been for the September 30 window dressing in VRX shares, which soared on nothing but month-end book marking.
The "hedged" end of Ackman's book is not helping either. Ackman is short just one company: Herbalife, which is up 44% in 2015.
And with hedge fund luminaries like Leon Cooperman blaming Ray Dalio's Bridgewater All Weather "risk parity" strategy for the August rout, we expect Ackman will blame none other than Martin Shkreli who did not make many friends with his bursting of the biotech bubble in the last two weeks of September.
Finally, considering that Morgan Stanley just downgraded Valeant, it may not be a good October either. Here is the punchline: "We now believe that large price increase (PI) drugs contributed more to 2Q:15 sales than we initially characterized in our Sept 29 Valeant note. We now estimate they represented 14% of 2Q:15 sales and 24% of EBIT. Had the PIs not occurred, we estimate EBIT from those drugs would have been about half (12% rather than 24%).... Transformational deals seem less likely now that VRX's multiple has stepped down from 15x to 10x '16E."
Source: Pershing Square [11] [11]


