Hedge fund manager Bill Ackman, who runs Pershing Square Capital Management, spoke about his massive wager against Herbalife at the annual Harbor Investment Conference.
“The last time I gave a presentation in this room it was 340-slides,” he joked referring to the 2012 special Sohn Conference where he publicly declared he’s short Herbalife.
“Today, I have no slides.”
Instead of presenting a new idea, Ackman decided to take questions and talk about anything people in the audience wanted to discuss.
Naturally, the elephant in the room came up after more than 18 minutes of Q&A on different stocks besides Herbalife.
Ackman was asked by New York Times’ reporter Will Alden if he had broken even on his Herbalife short.
“Not yet. We’re on our way, though.”
The reporter then asked him what’s the break even price.
Ackman didn’t give a clear answer on that one.
“Actually, interestingly on Herbalife, we’ve certainly lost a lot of money. It was interesting, as it went up, every dollar it went up, CNBC would report Pershing Square’s lost another $US20 million or another $US100 million or whatever. But as we make money on the way down, they stop doing that reporting.”
The Herbalife Short
In December 2012, Ackman publicly declared that he was shorting $US1 billion worth of Herbalife, a multi-level marking company that sells nutritional supplements and weight loss shakes. Ackman said he thinks the company operates as a pyramid scheme that targets lower income individuals, particularly from the Hispanic population. Ackman also believes that regulators, specifically the FTC, will be induced to investigate and shut down the company.
The company then became the center of an epic clash of hedge fund titans. Shortly after Ackman’s presentation, Ackman’s long-time rival Carl Icahn piled on by snapping up a massive long position. Icahn, who has made hundreds of millions on his position, has said that Ackman will be the victim of “the mother of all short squeezes.” A number of other fund managers have gone long the stock, too.
Right after Ackman revealed his short, Herbalife shares collapsed. Once other fund managers started going long, the stock surged throughout the next year resulting in hundreds of millions in paper losses for Ackman’s Pershing Square Capital.
Last October, Ackman said in a letter to investors that he repositioned his $US1 billion short by swapping more than 40 per cent of the equity short position for put options in an effort to reduce risk. He also continued to reiterate that he would take this short “to the end of the earth.”
Ackman said Wednesday that the way he’s positioned now with Herbalife he will be able to make more money.
“We didn’t simply transform our position from being short. We actually now have a much larger position notionally than we had initially. So if it were to disappear tomorrow, we’d make a lot more than had it just blown up the day after I gave my last presentation. Although, life would be a little easier. But we’re probably better off. In the investment business, the best way to make money sometimes if you have an investment against you…if you can…stay the course and structure yourself in a way you can benefit from a move in the stock price you can do better than you would have done.”
By repositioning what Ackman did was pare back his short exposure. He also structured options in a way that gives him higher “notional” exposure.
To put that in trader terms, say you’re trading the Non-Farm Payrolls number — one of the most important economic data points that comes out on the first Friday of every month. For the NFP, you might take $US20-30 million in “notional” exposure. However, as a trader, you might really only have between $US50-100K in risk.
Gotta love those derivatives.
Born To Run
Ackman co-chairs the annual Harbor Investment Conference with UBS private wealth management managing director Mark Axelowtiz. who is also an actor in shows like “Law & Order” and “Boardwalk Empire”.
The money raised from the event goes to the Boys & Girls Harbor, a 77-year-old non-profit that provides educational and performing arts programs to children and their families in East Harlem.
When Ackman took the stage, his “theme song” that played was Bruce Springsteen’s “Born To Run.”