Diary

Losing the Herbalife Battle Takes Its Toll on Hedge Fund Owner Bill Ackman

Bill Ackman of Pershing Square Capital Management

Just a few short years ago, Bill Ackman was riding high. His highly successful hedge fund, Pershing Square Capital Management, had more than $18 billion in assets under management, and Ackman had a chauffeur driving him to work every day. His effort to destroy for profit the natural supplements company Herbalife, begun in 2012, has started to take its toll. Pershing Square has lost money and Ackman is laying off staff and is likely to be driving himself to work.

Ackman placed a $1 billion short bet on the stock of Herbalife, that would put his hedge fund in position to profit greatly if the company declined in value or was driven out of business. Ackman did everything conceivable to devalue the company, cause its stock to decline in value, and outright accused the Herbalife of being a fraudulent scheme. Making his case to anyone that would listen over the last six year, Ackman even enlisted the help of cronies in government to get several federal agencies to conduct investigations into Herbalife on the allegations he lodged against the supplements company. Ackman pledged to “take to the end of the earth” his crusade to destroy Herbalife. At one point, Ackman even paid someone $3.6 million for negative information about Herbalife.

Herbalife has won the battle against Ackman and has emerged a stronger company. Herbalife reached a settlement with the Federal Trade Commission and agreed to sanctions and changes in its business practices. The changes made the company stronger. In June of 2017, Herbalife announced that 90 percent of their sales were documented purchases, exceeding the 80 under the agreement with the FTC, and that 400,000 customers were converted to preferred members since October of 2016.

Ackman himself is not doing as well. First, he’s capping his losses on the short bet against Herbalife, by restructuring Pershing Square’s position in the supplements company. Ackman’s battle against Herbalife has become a profile in all things a hedge fund should not do in an effort to profit from a short bet on a company’s stock.

Ackman himself, and Pershing Square, is taking the fall hard. Earlier this year he announced he laid off 10 of the 56 employees working of his hedge fund, including his own personal driver. Bill Ackman either has to drive himself to work or take the subway now. Pershing Square has declined greatly, how having only $9 billion in assets under management, has as much at did three years ago. Pershing Square lost $4 billion alone on its failed investment in the pharmaceuticals company Valeant. In 2017, Pershing lost 4 percent of its value while the S&P 500 gained 22 percent. Ackman’s hedge fund also lost 21 percent and 14 percent respectively in 2015 and 2016.

Ackman’s five-year long war against the company Herbalife lost him money because he had to change his $1 billion short bet to outright push positions with limits placed on his projected losses.

Ackman bet he would profit from his six year long battle to destroy Herbalife and he’s lost badly. His Pershing Square hedge fund has lost half its value in the last three years while the broader markets have gained.