UPDATE 1-Ackman's Pershing Square surges in April, beating many rivals

Thu May 1, 2014 9:58pm EDT

(Adds details on fund, performance, background on Herbalife)

By Svea Herbst-Bayliss

BOSTON May 1 (Reuters) - Activist investor William Ackman's Pershing Square Capital Management roared ahead in April with the help of a proposed acquisition, leaving his flagship fund up roughly 19 percent for the year, three sources said on Thursday.

The $13.6 billion hedge fund's Pershing Square Holdings fund gained 7.6 percent last month and is now up 20 percent while his flagship Pershing Square LP fund is up 18.7 percent for the year, net of fees.

The gains cement a dramatic comeback for one of Wall Street's most closely watched investors after some bruising losses during the middle of 2013 when the fund ended the year up 9.7 percent.

This year, thanks to gains throughout his concentrated portfolio, Ackman is sitting on one of the industry's best records, handily beating the Standard & Poor's 500 Index which is up less than 2 percent and many rival hedge funds that have been pummeled by the stock market's erratic moves.

Many fund managers are still compiling their monthly numbers.

A large part of April's gains were driven by pharmaceutical company Allergan Inc, whose stock rallied 36 percent in the wake of news that Pershing Square had acquired a 10 percent stake and is working with pharmaceutical company Valeant to buy the Botox-maker.

Pershing Square also won big when Japan's Suntory Holdings purchased Beam Inc, creating the world's third-largest premium spirits company. The deal closed this week.

Even his $1 billion short bet against Herbalife Ltd, the nutrition company Ackman has called a pyramid scheme, is working out this year as its stock price has fallen 24 percent. Last year it roared higher when rival fund managers including Carl Icahn and George Soros lined up against Ackman.

Herbalife has steadfastly denied that it pays members more for recruiting new members than for selling its products to retail customers.

The U.S. Securities and Exchange Commission, Federal Trade Commission and several states attorneys generals are probing the company and the FBI is pursuing a criminal investigation.

Icahn and Ackman, two of Wall Street's best known activist investors who push for change at companies, forged a truce last week after a telephone conversation and agreed to disagree over Herbalife, a person familiar with the discussion said.

Last week Ackman gained new attention when he announced that he was working together with Valeant to try and take over Allergan, creating what other fund managers have called a potential new model for activist investors who often have to wait for a catalyst to help push the share price higher.

While Pershing Square, which counts state pension funds in New Jersey, New Mexico and Massachusetts, among its clients is sitting on strong gains now, investors that the fund's very concentrated portfolio of roughly a dozen stocks can experience big gains, or losses.

This year, Ackman has sidestepped a lot of the wreckage that has hurt other fund managers whose big bets on technology companies, for example, have not worked out in the first months of the year.

(Reporting by Svea Herbst-Bayliss; Editing by Lisa Shumaker)