There’s a great piece in the Wall Street Journal about how Wall Street’s masters of the universe invest their own personal money through family offices, and how that can sometimes raise eyebrows across the industry.
It’s not hard to see why family offices can be a problem. Big time investors are supposed to be putting their clients’ interests first, and the WSJ argues that if they’re investing for themselves, they might get distracted from their work.
Worse yet, their personal investments could pose a conflict for their firms.
There are a bunch of big names in the piece — Blackstone COO Tony James, legendary hedge fund manager Paul Tudor Jones, and Apollo’s Joshua Harris.
Bill Ackman’s example, however, really stands out. That’s in part because it’s linked to one of the biggest business scandals in recent years — the fall of Valeant Pharmaceuticals. Ackman has a fraught relationship with the company. He backed its failed bid to acquire Botox-maker Allergan in 2014. A year later, Ackman’s Pershing Square fund bought a stake in it and rode the stock down through its dramatic 90% collapse until last month, when he finally threw in the towel.
During that time, the WSJ notes, Ackman made a personal investment ($US7 million for a 1.5% stake) into Sprout, the maker of a libido pill for females called Addyi in 2015. Valeant eventually bought Sprout, and apparently Sprout sought Ackman’s guidance on the matter, according to the WSJ.
He assured the company that Valeant’s management was top notch (of course, most of them have since been fired, including the CEO), and Valeant picked up Sprout for $US1 billion because of Addyi. Not a bad payday for Ackman.
The problem is, Addyi has been a massive failure for Valeant. According to experts, it just doesn’t work. So while this was a good deal for Ackman, it was a raw deal for Valeant and its shareholders (including Ackman’s Pershing Square and its clients.)
“Mr. Ackman told Pershing Square shareholders he had played no role in Valeant’s decision to acquire Sprout. His economic interest in Pershing Square was larger than his interest in Sprout, said a person familiar with his holdings. Valeant spokeswoman Lainie Keller said Addyi is FDA-approved ‘with a well-documented safety and efficacy profile.'”
So, according to the Journal, Ackman’s personal investment paid off nicely, while the shareholders of his fund ended up getting burned.
But you know, these things get messy.