DETROIT (Reuters) - Hedge fund manager Bill Ackman, once a leading skeptic on General Motors, is now among the revived automaker’s largest investors.
Two years ago he appeared on television to criticize the company’s lack of competitiveness, but then came GM’s bankruptcy-aided slim-down.
Along with a number of other well-known managers, including David Tepper and Larry Robbins, Ackman is now betting that GM can compete, with its more streamlined cost structure and growing presence in thriving auto markets, including China.
It is also a big bet on GM Chief Executive Dan Akerson, the former Carlyle Group director who took the helm at the automaker last September. Like the man he replaced, Edward Whitacre, Akerson had a long career in the tightly regulated telecommunications industry.
He has moved quickly to revamp GM’s top ranks and pushed a strategy of clearing debt and pension obligations.
With the company’s massive initial public offering in the rear view mirror, Akerson has already succeeded in attracting an all-star cast of hedge fund investors.
By year-end, GM was the most popular new position in the portfolios of the “Smart Money 30” group of some of the largest stock-picking equity hedge funds.
Ackman’s Pershing Square Capital Management had the largest stake among the “Smart Money” group, with more than 7 million shares, according to data compiled by Thomson Reuters. Ackman declined to comment for this story.
GM shares have slid about 10 percent so far this year, at one point dropping below their $33 IPO price, mirroring a similar decline for rival Ford Motor Co.
Yet GM’s long-term prospects appear strong as it readies a new line of vehicles to be launched in 2013, when U.S. auto sales are expected to return to precrisis levels, analysts and money managers say.
“It’s always going to be a high-beta name,” said CRT Capital analyst Kirk Ludtke. “You have a situation where there’s quite a bit of upside if it works.”
Akerson, a former Naval officer who served on a destroyer from 1970 to 1975, visited China last month to emphasize GM’s more global strategy.
A protege of cellular communications pioneer Craig McCaw, Akerson headed Nextel Communications, where he was known for taking charge of complicated engineering meetings and a ruthless focus on the bottom line.
During GM’s IPO roadshow last fall, Chief Financial Officer Chris Liddell wooed investors with the promise that the automaker would never again become “a $100 billion pension plan with a small company attached.”
GM ultimately pulled off the world’s largest IPO. Top hedge fund investors who bought shares included Bain Capital’s Brookside Capital Investors, John Griffin’s Blue Ridge Capital and James Dinan’s York Capital Management.
Part of GM’s allure comes from its strong balance sheet. Morgan Stanley analyst Adam Jonas, who has a $50 price target on GM shares, forecasts the automaker will generate more cash in the next five years than its current stock market value.
GM is the largest foreign automaker in China, where it has auto manufacturing ventures with state auto groups SAIC Motor and FAW.
GM held 13 percent of the Chinese market last year, including results from its joint ventures. Auto sales in China reached just over 18 million vehicles in 2010.
GM and Ford shares have stumbled this year, hurt by Ford’s disappointing fourth-quarter results and worries that a surge in oil prices may curb spending on new vehicles.
Rising commodity prices could also increase the cost of building vehicles and pose a challenge to GM as it readies a new lineup of cars in the next two years.
“Maybe the turnaround story is over and the reality is Ford, GM and Chrysler are now in an industry that has enormous competition and the stakes are very high,” said Bernie McGinn of McGinn Investment Management, which owns Ford shares.
GM stock faces additional pressure as the U.S. government gears up to sell its remaining one-third stake in the company, analysts said.
But Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management, said the recent drop in the share price was “short-term” and a function of a technical pullback after a run-up in the U.S. stock market last year.
“We had a series of a month or two with just everything going up,” Mikelic said. “The recovery is slowly taking hold and you don’t want asset prices to get ahead of themselves.”
Editing by Aaron Pressman and John Wallace