Valeant has cost one legendary value investor his job.
Bob Goldfarb, CEO of Ruane, Cunniff & Goldfarb, and the co-manager of the company’s flagship Sequoia Fund — which was at one time Valeant’s largest investor — is retiring from his roles at the firm.
In a letter to clients and shareholders posted Wednesday, Ruane, Cunniff & Goldfarb’s David Poppe — who will take over the CEO role at the firm and control of Sequoia Fund — said, “While we have beaten the market over the past decade, through the end of 2015, our investment in Valeant has diminished a record that we have built over two generations and in which we take great pride.”
Poppe added that, “We are a loyal, dedicated and intensely driven group, and to the extent that we have lost any of our investors’ confidence, we are determined to win it back.”
Ruane, Cunniff & Goldfarb is the second-largest shareholder of Valeant owning about 35.4 million shares, according to data from Bloomberg.
Bill Ackman’s Pershing Square is the largest shareholder, owning over 38 million shares of the company. Earlier this week, Valeant announced Ackman would join its board of directors.
Back in October, Sequoia defended its investment in Valeant in a letter to investors but admitted that the losses in the stock — which to that point totaled around 50% — had hurt.
“This has caused an extraordinary level of pain, made worse because the most serious allegation leveled against Valeant — that it set up specialty pharmacies as a way to create fraudulent sales and inflate its reported growth rate — is false,” Poppe and Goldfarb wrote back in October.
“As an academic case study, Valeant would be fascinating. As a real life experience, it hurts.”
Valeant shares are down about 70% from when that letter was published.
Wednesday’s note to clients was more conciliatory, with Poppe writing that the Valeant experience, “has spurred a period of reflection.”
“While our commitment to a value-oriented strategy grounded in extensive primary research remains as strong as ever, the Valeant experience has spurred a period of reflection,” Poppe wrote.
“Going forward, we have resolved to take a more collaborative approach to constructing the portfolio that will feature a more significant role for our senior analysts.”
“As we have noted many times over our history, it is inevitable that from time to time, our concentrated approach to portfolio construction will cause us to diverge from the market averages. In 1999, Sequoia underperformed the S&P index by 37 percentage points. Over 1972 and 1973, we underperformed by 23 percentage points. Though past performance is obviously no guarantee of future results, and though different factors admittedly drove each of these rough patches, we have every expectation that we will recover from this one by staying focused on our core principles of outstanding investment research, thoughtful security selection and stringent price discipline.”