Bill Ackman's Hedge Fund Losses Are Staggering

I have been scratching my head and wondering why people would pay 2/20 (2% annual/20% performance fee) for the right to invest in a hedge fund that does nothing other than go "double long" Target (TGT). For half the fees, I'd be happy to set up such a strategy! I am not a hot shot hedge fund manager, but in 2007 I could see the writing on the wall; for this insight I was paid 0/0. [Dec 26, 2007: Target Shoppers Turning into Walmart Shoppers] Suffice it to say, the migration of Target shoppers downstream and the general pain in consumer discretionary has not rewarded this strategy.

After staggering losses, investors are being "allowed" to take their money out (what's left of it)... how generous (and Ackman is considered one of the "good guys" in the business).

New York Times:

Hedge Fund Allows Investors to Withdraw What is Left

• In a move that could force similar changes at other money-losing hedge funds, the well-known fund manager William A. Ackman is cutting his fees and allowing investors to take what is left of their money from one of the funds he manages. Mr. Ackman, who runs Pershing Square Capital Management, is suffering huge losses on a fund he started nearly two years ago to bet solely on the rise of the stock of the discount retailer Target Corporation.
• The fund, called Pershing Square IV, is down nearly 90 percent this year, and Mr. Ackman has been feeling pressure from investors who want to take their money out. In an effort to mollify those investors, Mr. Ackman apologized for the losses in a letter sent on Sunday. He personally committed $25 million to the fund to help pay investors.
• The decline in the Pershing Square IV fund was about four times that of Target shares in January because Ackman made his bet using options rather than owning the underlying stock. (and if Target was up 9%, we'd be hailing his move as genius - the problem with much of the hedge fund world is they no longer .... well, hedge. It's outsized risk taking, and if the fund blows up, many just close up shop and start over when the dark clouds pass in a year. Anyone can do that strategy.) [May 12: Hedge Funds, It's a Mulligan Industry]
• “Bottom line, PSIV has been one of the greatest disappointments of my career to date,” Mr. Ackman said in the letter. “That said, we continue to believe that we will ultimately be successful in our investment in Target.” (we'll all be dead "ultimately")
• About 90 percent of the investors in the Target fund are also investors in Pershing’s other hedge funds, which were down 11 percent to 13 percent at the end of last year. For those investors, Mr. Ackman has agreed to forgo any performance fees on the other funds until he makes up for the current losses in the Target fund, according to the letter.
• Several large hedge funds, including Citadel Investment Group and Farallon Capital Management, have halted investor redemptions in certain funds after having huge losses last year.

[Jan 13: Logic Behind Bill Ackman's Purchase of General Growth Properties]

[Jul 15: Bill Ackman Offers a Solution to Fannie/Freddie Mess]

Comments

[User 296829:]

If I have learned only one thing from this financial calamity we are currently in, it is to trust no one but me. It is a shame that all these fees get paid to managers who leverage up their bets and when they get it wrong say sorry, but to continue to live their rich life style.

I will continue to purchase my stocks through a discount broker, keep my fees at a minimum, collect dividends, diversify my bets, and hope for the best.

Feb 11 08:29 AM

[James Wilson:]

I bet he wishes Cox has enforced the Insider Trading laws from January to July in 2008 when Excutives were dumping shares by the 1000's weekly.

Feb 11 08:37 AM

[thatswhatit...:]

according to the letter if Target is $65 or higher by Jan 2011 this is a 4-bagger; but if the price is $35 or less on Jan 2011 it is a ZERO...........this isn't an investment, this is a bet. why not just go to Vegas? where is the hedge? how can he NOT have downside protection? good luck to all of those who are invested in this crook.

Feb 11 08:43 AM

[valueinvest...:]

I sent myself an apology letter for my personal account losses last year. I feel better now.

Feb 11 08:58 AM

[Bill Herbert:]

A little over a year ago, I put on a small trade - short TGT and long WMT.

This was done through options, at a time when TGT was over 60 and WMT was around 49 or 50. I held it for a month, cashed out for a small profit when it didn't 'correct' to my expected price relationship quickly, and failed to put it back on later.

I could have made a boatload on this trade, if I had known what was to come in the next 6-8 months, as TGT collapsed while WMT actually rose somewhat. I now know why the original trade didn't work - this fool Ackman was pumping up TGT's price with his massive hedge fund bet - blowing somebody else's money by the hundreds of millions to pursue his flawed outlook.

Feb 11 08:58 AM

[Steve in TN:]

I agree with user***, the first poster. You'ld better learn to manage your own funds and not rely on other "experts". I have several wealthy friends who have had devastating losses due to the fact that they didn't want to manage their own money, even though they were more than qulaified to do so.
A "money manager" put them heavily in subprime investments in which most of that investment was lost. All the manager could say after the debacle was "it's down so far it's now a great investment. Let's buy some more." At this point the customers removed what was left of their portfolio.

Feb 11 09:05 AM

[ROLEX18:]

Bill Ackman is done, leave him alone, he doesn't sleep have stress as there are no investors who support him and as hedge fund dingo with the current funds he is finished.
From LTCM through AMARANTH ADVISORS and all 90% of funds that went bust in 2008-09 managers recovered their criminal instincts already after short time launching new funds with new names and different strategies.
Stay away from hedge funds, they are all SCAM and no money for you.

Feb 11 09:13 AM

[dixie:]

The debacle of the past 12 months has proved one thing.

There are NO EXPERTS: whether on wall street, in banks, in academia, or most certainly in Washington, DC.

Take heed. Left to our own devices, we can do no worse.

Feb 11 09:18 AM

[Harry Tuttle:]

Most hedge funds work like this: If the market goes up, I take 20% of the leveraged position. Since a rising tide lifts all boats, it doesn't really matter what I buy.

If the market goes down, I still make 2% of whatever I can keep after I close the gates.

Most never made any risk-adjusted money for anyone but themselves.

caveat emptor

Feb 11 09:28 AM

[Daniel Moser:]

Everyone, and I mean everyone, has entirely failed to see the otherside of the story with Ackman's fund. He never claimed that this fund referred to as the Target fund is a diversified low risk hedge fund. If this is all it takes to run a hedge fund, literally everyone would be doing it. They would start a fund, go all in on one stock and see if it works. That is not what Ackman is doing. He is an activist or at the very least is an activist with Target. He is working with management almost as a constultant to do things (right or wrong) that he believes will increase shareholder value for Target and thus his investors. Quite simply, he is a real investor in the "1940's building a business" sense of the word. While he might have positioned one of his funds entirely in Target stock, he seems to have done so because he believed if the execs at Target engaged in some of his ideas, their business would improve, not simply because he thinks he picked a winner with Target.

The reason the author is not running a hedge fund similar to Ackman's, with all due respect, is that he is lacking the capabilities and desire to work with the management of companies he invests in. Ackman literally is an owner of Target, as though Target is a private company. The only difference is that he knows every single day what his share of that company is worth. Hence, he is trying to do what he can to improve Target's business.

All hedge funds do not operate the same, people need to remember that. You can't compare D.E. Shaw or SAC Capital performance to Ichan or Ackman. They employ entirely different strategies. Doing so is entirely misrepresentative of positives and negatives of each fund.

All that being said, sure maybe Ackman could have done a little more to protect his clients. But as far as I can tell, when you invest with Ackman, you are investing in him to change businesses he invests in-not a quick trader who gets in and out in the blink of an eye.

Feb 11 09:54 AM

[cashew:]

So what ! You can rationalize it all you want different strategies etc but a huge loss is still a huge loss!


On Feb 11 09:54 AM Daniel Moser wrote:

> Everyone, and I mean everyone, has entirely failed to see the otherside
> of the story with Ackman's fund. He never claimed that this fund
> referred to as the Target fund is a diversified low risk hedge fund.
> If this is all it takes to run a hedge fund, literally everyone would
> be doing it. They would start a fund, go all in on one stock and
> see if it works. That is not what Ackman is doing. He is an activist
> or at the very least is an activist with Target. He is working with
> management almost as a constultant to do things (right or wrong)
> that he believes will increase shareholder value for Target and thus
> his investors. Quite simply, he is a real investor in the "1940's
> building a business" sense of the word. While he might have positioned
> one of his funds entirely in Target stock, he seems to have done
> so because he believed if the execs at Target engaged in some of
> his ideas, their business would improve, not simply because he thinks
> he picked a winner with Target.
>
> The reason the author is not running a hedge fund similar to Ackman's,
> with all due respect, is that he is lacking the capabilities and
> desire to work with the management of companies he invests in. Ackman
> literally is an owner of Target, as though Target is a private company.
> The only difference is that he knows every single day what his share
> of that company is worth. Hence, he is trying to do what he can
> to improve Target's business.
>
> All hedge funds do not operate the same, people need to remember
> that. You can't compare D.E. Shaw or SAC Capital performance to
> Ichan or Ackman. They employ entirely different strategies. Doing
> so is entirely misrepresentative of positives and negatives of each
> fund.
>
> All that being said, sure maybe Ackman could have done a little more
> to protect his clients. But as far as I can tell, when you invest
> with Ackman, you are investing in him to change businesses he invests
> in-not a quick trader who gets in and out in the blink of an eye.

Feb 11 10:19 AM

[Jake Berzon:]

I wouldn't have expected such a stupid idea and poor timing for a fund from Ackman - wow! On the other hand, at least he told his investors exactly what he was going to do before they committed any money and then acted "above and beyond" when it didn't work out. Much more than what can be said about the other stooges!

Feb 11 10:27 AM

[nova:]

User 296829 wrote:

> If I have learned only one thing from this financial calamity we are currently in, it is to trust no one but me. <

You are absolutely right. We are living in a society that is corrupt and has rotten to its core. Our government and our Congress are not "by the people and for the people"!

Feb 11 12:21 PM

[TraderMark:]

lol. Best comment ever ;)


On Feb 11 08:58 AM valueinvestor123 wrote:

> I sent myself an apology letter for my personal account losses last
> year. I feel better now.

Feb 11 05:19 PM

[TraderMark:]

Harry even worse - after they close the fund... they will show up in a year fund raising for a new fund and say the last blow up was "a black swan" or "once in a generation"

The amazing thing is prior to this current situation it's worked. Merriman who had Long Term Capital Blowup in 98 that literally required Fed intervention started another fund;... it also blew up. Now he is trying to start another

Who are all these damn smart people who give these guys money. I'm trying to start a fund with a measly $10M and cannot raise it because I don't have the pedigree to lose 2 billion. It's amazing.


On Feb 11 09:28 AM Harry Tuttle wrote:

> Most hedge funds work like this: If the market goes up, I take 20%
> of the leveraged position. Since a rising tide lifts all boats,
> it doesn't really matter what I buy.
>
> If the market goes down, I still make 2% of whatever I can keep after
> I close the gates.
>
> Most never made any risk-adjusted money for anyone but themselves.
>
>
> caveat emptor

Feb 11 05:21 PM

[TraderMark:]

Daniel most of your comments could be applied to private equity the same way. They jump in, work with management, send in people to scour the business, etc. The few private equity funds that are public (BX for example) have been complete disasters as well. The one thing Ackman did not do that most PE funds do is layer the company with loads of debt while extracting fees out the wazoo so at least he came out ahead there.

I think Ackman is very smart. And this fund is unique I agree. But definitely not "hedged" - there are many activist hedge funds - many of which are not successful.

It is just a strange concept to me...

On Feb 11 09:54 AM Daniel Moser wrote:

> Everyone, and I mean everyone, has entirely failed to see the otherside
> of the story with Ackman's fund. He never claimed that this fund
> referred to as the Target fund is a diversified low risk hedge fund.
> If this is all it takes to run a hedge fund, literally everyone would
> be doing it. They would start a fund, go all in on one stock and
> see if it works. That is not what Ackman is doing. He is an activist
> or at the very least is an activist with Target. He is working with
> management almost as a constultant to do things (right or wrong)
> that he believes will increase shareholder value for Target and thus
> his investors. Quite simply, he is a real investor in the "1940's
> building a business" sense of the word. While he might have positioned
> one of his funds entirely in Target stock, he seems to have done
> so because he believed if the execs at Target engaged in some of
> his ideas, their business would improve, not simply because he thinks
> he picked a winner with Target.
>
> The reason the author is not running a hedge fund similar to Ackman's,
> with all due respect, is that he is lacking the capabilities and
> desire to work with the management of companies he invests in. Ackman
> literally is an owner of Target, as though Target is a private company.
> The only difference is that he knows every single day what his share
> of that company is worth. Hence, he is trying to do what he can
> to improve Target's business.
>
> All hedge funds do not operate the same, people need to remember
> that. You can't compare D.E. Shaw or SAC Capital performance to
> Ichan or Ackman. They employ entirely different strategies. Doing
> so is entirely misrepresentative of positives and negatives of each
> fund.
>
> All that being said, sure maybe Ackman could have done a little more
> to protect his clients. But as far as I can tell, when you invest
> with Ackman, you are investing in him to change businesses he invests
> in-not a quick trader who gets in and out in the blink of an eye.

Feb 11 05:24 PM

[Dean M:]

that is hilarious

Feb 14 03:21 AM