Business

What Ackman’s Herbalife Battle May Mean For Hedge Funds

Hedge funds could one day have Bill Ackman to blame for yet another increase in regulation and compliance costs. His campaign against Herbalife has been getting lots of press for years—so much that, quite frankly, I’m tired of hearing about it.

But Forbes contributor Christopher Versace made a very interesting point about that campaign—one that doesn’t so much deal with what might happen to Herbalife as a result of the battle or possibly to Ackman because of the insider trading probe in which some consultants he hired were interviewed by investigators.

Herbalife Ltd. HLF

Hedge funds a popular political target

Over the last few years, politicians have maligned hedge funds for essentially exploiting too many loopholes. One of the most recent to complain about hedge fund managers in particular is Republican Presidential candidate Donald Trump, who said they don’t pay enough taxes. Billionaire Warren Buffett and Sen. Elizabeth Warren praised Trump’s speech, and President Barack Obama has also been critical of them in the past.

But while politicians like to complain about hedge funds, they do play an important role in our economy by offering investors a place to invest their money without having to pick all of their own individual stocks and helping them hedge against the risks inherent with making the big bucks on Wall Street.

How Ackman’s Herbalife campaign could impact the broader industry

Last week Roger Parloff of Fortune had plenty to say to both sides on the Ackman/ Herbalife battle. Pyramid scheme expert Bill Keep ripped that article apart in a post on Seeking Alpha, and for good reason.

But in his Forbes article, Versace makes the point that, in the end, it doesn’t matter whether Ackman or Herbalife “wins” the fight. The broader hedge fund industry as a whole may feel the effects of this battle for a long time to come.

Allegations against Ackman

He reminds us of how far the Pershing Square Capital chief may have gone in his vendetta against the company, as a New York Times article said he heavily lobbied the Hispanic organizations that wrote articles against Herbalife and Rep. Linda Sanchez, who wrote a letter to the Federal Trade Commission asking for an investigation of the company. The paper also alleged that Ackman disclosed to a small group that Ms. Sanchez was sending that letter before the FTC even stamped it as being received.

An Herbalife spokesperson released the following statement to ValueWalk: With Ackman’s campaign reportedly already under criminal investigation, more and more reputable business publications and commentators are calling into question Ackman’s methods and they tell the story of a man who appears to be willing to do anything to win his reckless bet.”

The problem other hedge funds could have in the future is that regulators may decide they need to keep a closer watch over them in light of everything Ackman has been accused of doing in his quest to bring down Herbalife. At this point it may not even matter whether he actually did anything he’s been accused of doing. The real issue could be that regulators want to watch hedge funds more carefully to ensure that a bloody battle the size and nature of the Ackman/ Herbalife fight doesn’t happen again. If they do, that could mean another increase in regulatory and compliance costs for hedge funds.

 

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