One of a hedge fund manager’s super powers is the ability to move market’s with a few words. On Wall Street, that’s like being able to leap tall buildings in a single bound. To do it you need cash, a platform, and faith.
Living legend Bill Ackman no longer has all three of those things. he still has the cash and the platform, but the faith has waned, and if Ackman wants to keep all of those from eroding further he’ll need to pull off a feat of heroic proportions this coming week.
That’s when he’ll announce where exactly his hedge fund, Pershing Square, is putting $1 billion of investor money. Investors have until July 17th to commit some cash.
Ackman’s target is said to be a large American company, one that we’ll all know — that sentimental connection being important to our attention — a company that can start a new story and make us forget Ackman’s last year.
A year filled with rusty Penneys and rotting Herbs
Being a billionaire investor can’t save anyone from the prying eyes and sharp tongues of Wall Street, and in the last year Ackman has had an abundance of attention from both.
His troubles can most clearly be traced back to the Spring of 2012. That’s when Ackman’s massive investment in JCPenney started turning sour. Pershing Square owns 17% of the retailer. In May 2012, he closed the Sohn Investment Conference (a marquee event for anyone who’s anyone in the vale investing space) with a detailed presentation on why the stock was undervalued.
And then, when he was done, nothing happened — the stock moved up a percentage point or so, but it wasn’t anything to write home about. The Street wasn’t buying it, there had been too much noise about the company’s failures, about hedge funds that had followed Ackman into the deal getting burned, about his changes within the company that royally hacked off their most loyal customers leading to their incredible 2013 ad campaign admitting they screwed up.
Regardless, the stock is still down 32% since that day.
In the months that followed Ackman tried to use all his strength to turn sentiment around, but his actions sometimes went beyond futile, venturing into awkward.
The pinnacle of awkward being the Squawk Box interview in November, 2012 when Andrew Ross Sorkin accused Ackman of giving a commercial for JCPenney. Despite Sorkin’s statement, Ackman continued to explain his long thesis. He must have taken a cue from Kanye saying he was not finished, even holding up visuals to explain the store’s plans. But after 14 more painful minutes of Ackman most definitely not finishing, the show’s producers played the music and cut to commercial.
Still, with $12 billion under management, Pershing Square’s inertia was in no way going to be impeded by one bad investment.
In December, 2012 Ackman put on a show, diverting The Street’s attention from the JCPenney debacle, and giving everyone something else to talk about — a massive short against a multi-level marketing nutrition company called Herbalife.
Ackman assembled investors, reporters and the rest of the Wall Street circus in an auditorium and gave a breathtaking three hour, three hundred page presentation on why Herbalife was a sham and the stock was going to zero. He even had the chutzpah to serve Herbalife products to his guests during the presentation.
And for a few days, it seemed like Akman had his swagger back. Herbalife stock plummeted almost 19 per cent through Christmas. Eventually though, the stock did start making a steady come back in the new year, but it was rough going.
Ali vs. Frazier, Ichan vs. Ackman
The real turnaround for Herbalife came when an old enemy of Ackman’s, Carl Ichan, took the other side of the trade in early January.
Ackman and Icahn have feuded for a decade after a deal they made went sour. Herbalife, it seemed, would be their next battle. On January 24th Icahn told Bloomberg’s Trish Regan that he didn’t approve of Ackman’s methods and that he didn’t like the guy one bit (no secret there).
“Frankly, I don’t like the way he did this anyway. If you’re short, you go short and hey, if it goes down you make money. You don’t go out and get a roomful of people to badmouth the company. If you want to be in that business, why don’t you go out and join the SEC?”
The next day, Ackman was on CNBC’s Halftime Report. Icahn called in, Ackman agreed to speak with him, and the rest is financial TV — no — Wall Street history. The two men brawled so hard that you could hear the traders on the floor of the NYSE in the background yelling their reactions to each lob.
“I’m telling you he’s like a crybaby in the schoolyard. I went to a tough school in Queens, you know, and they used to beat up the little Jewish boys. He was like one of the little Jewish boys crying …”
Watch and listen to all of the carnage or skip to the rest of the story below:
After the dust settled and the blood dried, that interview opened the flood gates.
Over the next few months, Herbalife’s stock price rose as JCPenney’s plummeted. In March, Vanity Fair wrote a profile of Ackman highlighting his awkward relationship with his peers, his hyper-competitive nature, and a few less-than-flattering anecdotes. In April, he was forced to sack JCPenney CEO Ron Johnson and change course.
Then in May, Ackman presented his long thesis on Procter and Gamble at the Sohn Conference, back at the same place and to the same crowd of hedge fund faithful as the year before when he tried to zero-out Herbalife. The P&G presentation was safe, and rather extensive.
Procter and Gamble stock didn’t budge.
The platform was there, the faith was not. Bill Ackman had lost his juice. His mana from the Finance Gods dried up and trampled on by Ron Johnson’s hooves, Ichan’s devil tongue and Herbalife’s resistance.
But this is still Wall Street, and there’s no reason to think Bill Ackman can’t take his power back and become even more formidable than before. He got to where he is now after the explosion of his first hedge fund, Gotham Partners, in 2003. This is the kind of come back story The Street has seen again and again.
Unfortunately for Ackman, coming back is never easy business. It requires all of the talents Ackman possesses — brains, brawn, showmanship — along with luck and a little faith.
Oh, and $1 billion to put wherever you like. You need that too.
We’ll see if it all comes together next week.
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