Two years ago, investor William Ackman, who pushes corporations to perform better, took his own advice and laid out a plan for a comeback after years of losses.
Over dinner at the New York Public Library, Mr. Ackman told investors in January, 2018, that he was going back to basics by cutting staff, ending investor visits that were eating into his time, and hunkering down in the office to do research.
Now, Mr. Ackman has the numbers to prove his strategy is working.
The Pershing Square Holdings portfolio, the biggest at his Pershing Square Capital Management firm, returned a stunning 58.1 per cent last year, making it one of the world’s best performing hedge funds. It outpaced not only the benchmark S&P 500 stock index’s 29-per-cent gain, but also the average activist hedge fund’s 18.3-per-cent return, data from Hedge Fund Research show.
Mr. Ackman has said privately he was going activist on himself to resuscitate his 16-year-old firm, Pershing Square Capital Management, after suffering double-digit losses in 2015 and 2016 followed by smaller declines in 2017 and 2018.
When Mr. Ackman next meets investors over dinner in February, he will be able to report that 2019 was his firm’s best year so far. Assets stand at US$7.4-billion and he will be able to charge performance fees again.
Despite his undisputed bragging rights, investors say they see a more humbled Mr. Ackman, who is sticking with the back-to-basics theme. He is staying out of the limelight while methodically searching for his next bets from new offices overlooking the Hudson River.
Mr. Ackman declined to comment.
If there was any secret sauce to last year’s gains, it included patiently waiting for changes that Mr. Ackman had pushed for, often behind the scenes, to pay off, investors said.
Some big winners, including Chipotle Mexican Grill Inc., which returned a whopping 72 per cent over the past year with a new chief executive, have been in the fund for years.
Engagement at Starbucks Corp., bought in late 2018 and up 40 per cent in the last year, was out of the public eye. Even an investment in Automatic Data Processing LLC, where Mr. Ackman lost a bitter proxy contest in 2017, paid off as Mr. Ackman and ADP chief Carlos Rodriguez discussed potential changes over dinner.
Some investors also saw a changed Mr. Ackman when he exited his United Technologies Corp. investment after sharply criticizing its planned merger with Raytheon Co. The money could be better invested elsewhere, Mr. Ackman said, after having privately mused that he previously had held on to soured bets in drug company Valeant Pharmaceuticals International Inc. (now Bausch Health Companies Inc.) and Herbalife Nutrition Ltd. for too long.
To be sure, many activists who – like Mr. Ackman – had bet portfolio companies would climb, got a boost from a booming stock market. Other firms, such as Elliott Management and Third Point, that pursue activist investments plus a range of other strategies, delivered gains in the single- or low double-digits, their investors said.
It may be tough to repeat 2019, but Mr. Ackman has said that Pershing Square has had five years of gains topping 36 per cent.