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Rupert Hargreaves
Rupert Hargreaves
Articles (738)  | Author's Website |

Bill Ackman Makes a Comeback, but Can His Good Performance Continue?

After a positive first half, Ackman's outlook is improving

While other investors struggle, 2018 is turning out to be a fantastic year for activist hedge fund manager Bill Ackman (Trades, Portfolio).

Until 2015, Ackman was considered to be one of the best and brightest of the hedge fund world. His activist campaigns shaking up sleepy management teams had generated tremendous returns for investors in his hedge fund, Pershing Square, and at the end of 2014, it looked as if there was no limit to his genius.

Indeed, Pershing Square returned a staggering 40% in 2014, many thanks to a bet on pharmaceutical giant Allergan (NYSE:AGN).

It all started to unravel for the activist investor in 2015. Ackman had built a huge stake in Valeant (NYSE:BHC), believing it to be an "very early-stage Berkshire," but soon after he made this comparison to Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), shares in Valeant began to slide. During 2015 the shares fell all the way from $262 to $11. In total, Ackman lost around $4 billion on this mistake. More important than money, his reputation was ripped to shreds.


After these horrendous losses, it was widely believed that Ackman would never be able to stage a comeback.

But against all odds, it is beginning to look as if Pershing is on its way back up.

A sudden recovery

According to the firm's first-half financial report, during the first six months of 2018, Pershing Square Holdings, the publicly traded fund, is up 12.7% compared to the S&P 500's return of 8.1%. Two holdings, in particular, have helped Pershing beat the market. Chipotle (NYSE:CMG) contributed 5.6%, while ADP (NASDAQ:ADP) contributed 5.1%.


And Ackman is back to his old activist tricks. He is currently lobbying management at United Technologies (NYSE:UTX) to break up the company. He believes the group, which manufactures everything from elevators to refrigeration systems, and aerospace systems would be better off as separate businesses.

According to Ackman, "Each of these businesses has materially different capital requirements, competitive characteristics, and investor constituencies, and we believe that they will be more likely to achieve fair value as independent companies."

Can the performance continue?

At this early stage, it is difficult to tell if Ackman's comeback has legs, but it is interesting to observe how far he has come over the past 24 months.

Ackman has been dealt a good dose of humble pie, after having to defend himself when taking a position in Chipotle and then losing a proxy battle with management at ADP. The setbacks showed by just how much his reputation had been impacted by the Valeant scenario. It will take time for the activist to rebuild his reputation fully, but he is heading in the right direction.

I'm fascinated by how Ackman has continued to push on with his investing, despite the setbacks he's suffered over the past few years. Even after suffering the $4 billion Valeant setback, part of his reputation is still intact, and there is plenty of time to rebuild. Indeed, since inception (first quarter of 2004) to the beginning of 2018, Pershing Square returned 494%, compared to a total gain of 221% for the S&P 500 over the same period.

Ackman declared at the beginning of 2018 that he had "learned from his mistakes" and made changes to the way Pershing operated to make sure the firm invested according to its core principles.

These changes seem to be having an impact already. It is too early to tell if this will continue, but Ackman's desire to keep plugging away and driving for a positive return makes me believe that the firm is unlikely to repeat its past mistakes.

Ackman has tried to put his substantial losses behind him and move on. Most investors could learn a lot from this approach. He's not perfect, but no investor is.

Disclosure: The author owns shares in Berkshire Hathaway.

About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website

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