Bill Ackman Makes The Case For Hedge Fund Investing On A Drawdown

Bill AckmanBill Ackman Photo via InsiderMonkey, Flickr (CC BY-ND 2.0)

There is a controversial alternative investment technique known as investing in a good manager after they experience a drawdown.  Investing in activist hedge fund manager Bill Ackman could be a case in point.

Is Bill Ackman the comeback player of the year?

CNBC‘s hedge fund reporter Lawrence Delevingne questions if Bill Ackman is the comeback manager of the year.  The hedge fund titan had been accused of losing his golden touch in 2013 – along with $1.2 billion in assets under management, as investors pulled their funds due to performance.  That was the year fellow activists Carl Icahn and Dan Loeb took the other side of his now famous Herbalife Ltd. (NYSE:HLF) trade.  That was before Bill Ackman’s privately touted regulatory crackdown had reared its public head.  He was also criticized for his investment in J.C. Penney Company, Inc. (NYSE:JCP), which the report notes was called a “fiasco.”

A new year, a fresh outlook

That was then, this is now.

Bill Ackman has perhaps emerged as the early hedgie with the magic touch in 2014.  The early comments on his much-ballyhooed Allergan investment is being called “brilliant” and “couldn’t miss.”  Think about it.  Rather than go through the trouble of getting insider information.  (Fox Business is reporting Ackman says he didn’t violate insider trading laws in the Allergan takeover because there was no breach of duty. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) shared its interest in Allergan, Inc. (NYSE:AGN) with him, tweeted Charlie Gasparino.)

Bill Ackman's Big year

But it’s more than what seemed like a sure thing with the Allergan, Inc. (NYSE:AGN) trade.  Not only has the Herbalife Ltd. (NYSE:HLF) short paid off, but Bill Ackman’s investments in Beam is up 22.6%, only to be outdone by Platform Specialty Products.

“The acquisition of Beam, which connects back to his work at separating Fortune Brands started a few years ago, will go down as a great activist case study,” Gregg Hymowitz, managing partner of EnTrust Capital, was quoted as saying. “Additionally, his latest position with Allergan, Inc. (NYSE:AGN) is possibly starting the newest trend in activism, proving yet again that he can be a very thoughtful investor.”

It’s that “newest trend in activism” that might be the most interesting aspect of this story.  Will other activists such as Carl Icahn lend their activist muscle to a corporate acquirer who is having difficulty in helping their prey see the light?

That’s the big question that remains to be seen.



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com