Exclusive: Ackman's fund flat after August losses - sources

BOSTON Wed Sep 4, 2013 2:15pm EDT

William Ackman, CEO of Pershing Square Capital Management, speaks at the Partner Connect 2013 conference, sponsored by Thomson Reuters, in Boston April 5, 2013. REUTERS/Brian Snyder

William Ackman, CEO of Pershing Square Capital Management, speaks at the Partner Connect 2013 conference, sponsored by Thomson Reuters, in Boston April 5, 2013.

Credit: Reuters/Brian Snyder

BOSTON (Reuters) - William Ackman's Pershing Square Capital Management is largely flat for the year after a bruising August in which the hedge fund lost 3.6 percent, said two investor sources who are not permitted to discuss the private fund's numbers publicly.

The sharp decline was largely driven by big bets on J.C. Penney Co Inc (JCP.N) and Herbalife Ltd (HLF.N) and have left Pershing Square, with $10.73 billion in assets, badly trailing the broader hedge fund industry and the overall stock markets.

Pershing Square's poor performance stands in sharp contrast with the benchmark Standard & Poor's 500 Index, which was up 14.5 percent for the year as of August 31.

Coming on the heels of a 2.2 percent loss in July, the fund's latest numbers revived worries among investors ranging from pension funds to wealthy individuals about how the manager, a longtime industry darling, can repair the portfolio.

The year-to-date washout, after a 6.2 percent gain in the first quarter, shows just how badly Ackman is lagging behind many rival managers who have posted double digit returns this year.

While August was tough for many hedge fund managers, Daniel Loeb's Partners Fund is still up 15.6 percent for the year despite a 0.7 percent drop last month, a third source said. And David Einhorn's Greenlight Capital rose 1 percent in August month and is up 11.4 percent for the year, the person added.

The source is familiar with the funds' numbers but is not permitted to discuss their performance publicly because they are private.

Now that monthly losses have mounted at Ackman's fund - which ended January with about $12 billion in assets - investors may consider whether they want to stay or leave. The next redemption deadline to exit the fund is September 30.

Over the fund's life Ackman has delivered an average annual return of 20 percent, but the manager has acknowledged memorable investment disasters including bets on retailers Target Corp (TGT.N) and Borders Group Inc BDGUP.UL.

Ackman's latest monthly portfolio update, as usual, listed only the numbers, and did not specify the reason for August's losses. But it was clear that retailer Penney and supplements company Herbalife weighed on performance.

As a Penney board member, Ackman battled with the retailer's directors over its strategy but had little political capital to win them over to oust the current chief executive. Ackman left the board in August and announced only a few days later that he was selling his fund's 39 million of common shares in Penney.

Those shares were snapped up, in part, by hedge fund managers Kyle Bass, Larry Robbins and Richard Perry, said one of the two investor sources who is familiar with the sale.

While the private placement, underwritten by Citigroup, suggests Ackman has exited the investment completely, the fund still has some exposure to the company through derivatives, the source said.

(Reporting by Svea Herbst-Bayliss; Editing by Matthew Goldstein, Gerald E. McCormick and Richard Chang)

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