Tuesday, February 10, 2009

Bill Ackman Takes Staggering Losses in Hedge Fund

I have been scratching my head and 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 & 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 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]

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