2014 hasn’t exactly been good to the hedge fund industry, with operations shutting at a rate not seen since 2009. Closures aside, there has been quite a bit going on otherwise – especially when it comes to the billionaires at the top of the crop.
From Bill Ackman’s extraordinary run to Carl Icahn’s energy sting, 2014 has been an important year for many of Wall Street’s best and brightest. Here’s a look at some of the biggest billionaire moments of the year:
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Ackman’s Herbalife Bomb
In July, Bill Ackman spent three hours on a Manhattan stage outlining his case against Herbalife Ltd. (NYSE:HLF) in what he called “the most important presentation” of his career. In the first hour of the exhibition, Herbalife’s price rose +8%. By the end of the day, the stock had gained +25%. In other words, Ackman bombed.
Despite Herbalife’s post-presentation surge, it looks as though Ackman may get the last laugh. The company disappointed with its earnings report in early November, and investors – including billionaire George Soros – have begun to flee. The stock has declined nearly -20% since August.
Icahn’s Case for Activism
Carl Icahn gets the internet. He’s got Twitter Inc (NYSE:TWTR), a website, and even Tumblr. And this year, he leveraged the platform to get his message across in a big way.
In August, Icahn laid out some statistics to make a pretty compelling case for his activist tactics. The gist: investing in the companies in which Icahn’s activist campaigns have been successful would obtain an annualized return of 27%. He made the same case in a piece for The Economist last month.
The billionaire scored a number of activist wins this year, perhaps the biggest being Apple Inc. (NASDAQ:AAPL)’s buyback program and eBay Inc (NASDAQ:EBAY)’s PayPal spinoff. It will be interesting to see what the billionaire has up his sleeve for 2015.
A number of Wall Street magnates took a major blow in September when a U.S. court dismissed claims on profits from mortgage finance giants Freddie Mac and Fannie Mae. Among the hardest hit by the decision was Bruce Berkowitz, manager of Fairholme Capital, and Bill Ackman.
SEC regulations no longer require institutional investment managers report their Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) positions, but by the looks of it, the two aren’t throwing in the towel just yet. Ackman touched on the issue in his Q3 letter to Pershing Square investors:
While we remain confident in the prospects for Fannie and Freddie and believe our investment in their common shares will ultimately be worth a large multiple of current prices, the litigation is likely to continue for a protracted period before being resolved, unless the Administration, Treasury, Congress and other interested parties forge a consensual resolution. In light of the inherent uncertainty of the situation, our combined investment in the two companies represents about 3% of our capital at current market value.
Billionaires Hop on BABA
There was a huge amount of buildup to Alibaba Group Holding Ltd (NYSE:BABA)’s September IPO – and a lot of speculation as to which billionaires would be investing and when. Expectedly, a number of big names jumped on board. But there were a few surprises.
While notoriously China tech aggressive Tiger Global steered clear of BABA, Julian Robertson, the tiger papa, dove in. David Tepper, George Soros and Dan Loeb jumped on the BABA boat as well.
Tech Tremors Turn into Energy Aches
During the first half of the year, it seemed like everybody and their brother was warning of a tech bubble, including David Einhorn and Seth Klarman. But it wasn’t the tech sector that stung hedge funds most in 2014 – it was energy.
The energy sector has been thrashed by falling oil prices in recent months, and companies and investors are smarting. The Energy Select Sector SPDR ETF (NYSEARCA:XLE) has declined -18% over the past month, and companies like Transocean LTD (NYSE:RIG), Chesapeake Energy Corporation (NYSE:CHK) and Linn Energy LLC (NASDAQ:LINE) have plummeted. Carl Icahn’s energy investments weighed heavily on his personal portfolio and on IEP in Q3, and the bleeding hasn’t stopped just yet.
However, there’s a flipside to falling oil prices, tied to consumer spending, auto sales and even shipments.