2015 letter to investors from Pershing Square Capital Management Chairman of the Board Anne Farlow – presented without comment
Michael Mauboussin: Here’s what active managers can do
During the year to 31 December 2015, PSH’s NAV fell by 20.5%i . This is in sharp contrast to the net returns of 40%ii generated in 2014, and Pershing Square’s long-term track record of a 17.1%iii compound annual return from its inception in 2004 through to the end of 2015. More than half of PSH’s decline in NAV was due to the fall in value of our stake in Valeant Pharmaceuticals International, Inc. (“Valeant”). Valeant was hit inter alia by political attention on drug pricing, the closure of a distribution channel for 7% of Valeant’s sales, questions raised by a short seller on the company’s accounting, and a loss of confidence in the company’s governance and management. The Investment Manager has recently taken steps to protect and enhance the value of its investment in Valeant. Further analysis of the performance in 2015, and the specific events at our portfolio companies may be found in the 2015 Key Highlights and the Investment Manager’s Report on pages 5-20.
Bill Ackman 2015 letter to investors – INVESTMENT MANAGER
After a year of poor performance, it is necessary to analyse what went wrong, and what lessons can be learned. In the 2015 letter to shareholders, Bill Ackman discussed where errors were made, and also how the challenging financial markets caused share prices to fall even though companies were for the most part producing strong financial results. The Investment Manager is also reviewing its Valeant investment in order to identify where mistakes may have been made and how to avoid them in the future. It is important to note that the concentrated nature of PSCM’s portfolio is likely to lead to lumpy investment performance on both the upside and the downside. Unfortunately, we have seen the downside of this concentration in 2015, but the Board does not believe that a year of poor performance requires a change in strategy. The Board fully supports the Investment Manager in its strategy of making a small number of meaningful investments in companies where an activist investor can add value. PSCM expects to continue to hold many of our current portfolio companies through 2016, but may also make one or more new investments.
Bill Ackman 2015 letter – LETTER TO SHAREHOLDERS
In our Portfolio Update section to follow, we provide an update on recent events at Valeant, which include Steve Fraidin, our Vice Chairman, and I joining the Valeant board, and the announcement that Mike Pearson, CEO, will be stepping down once a new CEO begins work at the company. Recent events have required us to take a more active role at the company, and our presence on the board will now give us influence over the selection of the new CEO, capital allocation, and strategy.
I have always believed that experience is best defined as making mistakes and learning from them. I have made many investment mistakes over the last nearly 25 years managing investments, but the overall result has been quite satisfactory. I believe that this is principally because we have used errors of judgment, execution, or analysis as important opportunities for study, learning, and introspection. We intend to do so here.
Full PDF here PSH-Annual-Report-12.31.151