October 21, 2015 / 5:02 PM / 5 years ago

Hedge fund mogul Ackman hit hard by huge Valeant bet

BOSTON (Reuters) - Hedge fund mogul William Ackman has become one of the biggest casualties of a meltdown in pharmaceutical firm Valeant, with losses on the position amounting to roughly $1.8 billion so far this year, including more than $800 million at one point on Wednesday.

William Ackman, founder and CEO of hedge fund Pershing Square Capital Management, speaks during the Sohn Investment Conference in New York May 4, 2015. REUTERS/Brendan McDermid

Valeant shares plunged as much as 40 percent after an influential short-seller accused the company of fraud, saying it used its relationship with specialty pharmacies to inflate revenue.

With the stock’s dramatic swings, Ackman’s portfolio lost as much as $820 million during the day but the loss lessened to roughly $650 million as the price inched up again in mid-afternoon. Cable television station CNBC reported that Ackman bought an additional 2 million shares of Valeant on Wednesday.

The hit is likely to cement Ackman’s Pershing Square Capital Management’s place as squarely in the red this year, a twist of fate for a fund that in 2014 yielded 40 percent returns and bested a field of high-profile rivals.

“It takes a lot to turn (Ackman’s) stomach, but today might be the day,” said an investor in the fund, who asked not to be named.

Pershing Square was down nearly 13 percent for the year by the end of September, according to investors, after market turmoil caused by concerns over China’s economy, slumping commodities prices and a potential Fed interest rate hike struck several of its holdings.

A spokesman for Ackman declined to comment.

Citron Research, which published its report on Wednesday, said Valeant failed to disclose ties to specialty pharmacies which helped create “phantom sales” of its products.

Valeant said it does not record drugs stocked at such pharmacies in its consolidated financial reports.

Ackman said in March his fund had acquired a 5.7 percent stake in Valeant, making Pershing Square the company’s third-largest shareholder. The stake, 19.5 million shares, cost Ackman about $3.3 billion at the time, according to the investor.

That position was a huge winner in the first half of 2015, but started to falter in recent weeks, and was pummeled after the Citron report.

Valeant is down 20.15 percent this year.

Ackman’s position is now about $1.8 billion in the red since it was acquired, according to the investor.

Less than three years ago, it was Ackman who accused a company of fraud, placing a $1 billion short bet against nutrition and supplements company Herbalife and saying it runs a pyramid scheme, something Herbalife denies.

Herbalife is up about 48 percent this year to around $55.60 a share, further hurting Ackman’s portfolio.

Ackman scored a 40 percent gain in 2014 thanks to a huge win on Botox maker Allergan.

Reporting by Svea Herbst-Bayliss; Editing by Richard Valdmanis, Nick Zieminski and Frances Kerry

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