While Bill Ackman’s Pershing Square Capital Management LP rarely makes layoffs or sees much in the way of turnover, vbur the beating that his fund has taken this year is ordinary unless you’re speaking to the shellacking the hedge fund took last year. The fund is reported to have laid off eight low-level investor and technology service employees (about 10 percent of the total staff), according to David Benoit of The Wall Street Journal.
Ackman’s axing of eight is over 10% of Pershing’s workforce
Generally speaking, you wouldn’t think of letting eight employees go as a tremendous reduction of your work force but Pershing Square had less than 80 employees when the move was made. Additionally, earlier in the year, two of Ackman’s friends and top-tier employees left Pershing Square including Ackman’s college roommate, Paul Hilal.
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William Doyle, who attended business school with Mr. Ackman also left the firm. While speculation, it’s not difficult to guess that Ackman didn’t mind the latter’s departure nearly as much as it was Doyle who brought Valeant to Ackman and it’s the pharmaceutical company’s “performance” that has provided most of the punches to the beating the fund has taken over the last calendar year.
Ackman is purported to have told the firm that no further reductions in staff are expected and not the result of the fund’s grim recent performance. Rather, he told them it is due to advancements in technology and automation that forced the employees out the door as they were deemed surplus to requirements.
It’s Valeant not the fund?
It would be nice to say that, but Pershing Square’s Valeant play is precisely the reason for its poor performance over the last two years.
The publicly traded fund is down about 21% this year through last week according to a recent regulatory filing essentially mimicking last year’s whole year performance, but there are still two quarters left in 2016. This is largely do the fund’s holding in Valeant Pharmaceuticals which has seen a 90% loss in its stock since August. Ackman has publicly stated that he believes that Valeant is weighing down other stocks that the fund holds.
Valeant has a lot of problems but two are bigger than the rest. The pharmaceutical company’s massive debt and its pricing practices are largely faulted for the demise of the stock with the former kneecapping the ability of the company to continue its aggressive mergers and acquisition practices.
Certainly, Martin Shkreli and Turing Pharmaceuticals can be blamed for the focus on Valeant’s pricing practices and consequent loss in pricing power.
While the fund largely manages the private investment funds that is Pershing Square’s capital, this needs to change to see its employees happy again as their pay is intrinsically tied to the fund’s performance and well below what is expected.
To show how much the Valeant investment has hobbled the company and strip it of its capital, at the end of July 2015 the fund managed $20.2 billion in assets which has dropped to $12.3 billion as of the end of this May. The hedge fund was down 21 percent as of June 21st according to an investor update.
To make things worse for employees bank accounts and overall morale, insiders are not allowed to pull their personal assets even in the face of the public pulling their money. Outside investors are also limited with most unable to pull their investment is more than quarterly 1/8 increments.
It will be a long wait for some as they hope to see Pershing reverse its recent performance.
A spokesperson for Pershing Square declined to comment on the matter to ValueWalk.