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Beginning Of The End For Swaggering Hedge Fund Billionaire?

20Nov

Whom the Gods would destroy, they first make arrogant. William A

Whom the Gods would destroy, they first make arrogant.

William A. Ackman of Pershing Square Capital Management (PSCM), a billionaire hedge fund manager, seems exemplary.

He wears his arrogance on his sleeve.

According to the New York Times, Mr. Ackman played tennis with Andre Agassi and John McEnroe. He purchased an opulent Manhattan apartment because it would “be fun.”

Three years ago, his hedge fund outperformed its rivals by leaps and bounds.

And in December 2012, Mr. Ackman took a $1 billion public short in the stock of a nutrition company called Herbalife. Like the lead actor in a Cecil B. DeMille cinematic extravaganza, Mr. Ackman performed for three and one-half hours in a 500-seat auditorium at the AXA Equitable Center in Midtown Manhattan maligning Herbalife as the “best managed pyramid scheme in the history of the world, ” and forecasting that its stock would plunge to zero. He has since labored with the zeal of Captain Ahab to lobby law enforcement to prosecute Herbalife for fraud to profit richly from his short position.

But the curtain seems to be falling on Mr. Ackman’s stardom.

For the second consecutive year, PSCM will probably lose substantial sums for its investors. Its holdings are down approximately 20 percent this year–the same percentage loss that was incurred in 2015.

Mr. Ackman’s hefty investment in Valeant Pharmaceuticals has exposed his feet of clay. In 2015, he paid $190 per share for 10 percent ownership. The stock price has now plunged to approximately $17. During a hearing before a United States Senate Committee, Mr. Ackman declared that “I regret that we did not do more due diligence in pricing.” Maybe if the hedge fund manager had been less preoccupied with destroying Herbalife, he might have examined Valeant with greater care.

Pricing wasn’t its only problem. On November 17, 2016, the United States Attorney for the Southern District of New York announced criminal charges against a former Valeant executive, Gary Tanner, and the CEO of Philador Rx Services, Andrew Davenport for an alleged kickback scheme that “illegally converted Valeant shareholder money into their own personal nest eggs.”

As Valeant shares tumbled, Mr. Ackman invested more, like expending resources to reinforce Napoleon after the Battle of Waterloo.

In the manner of the Prodigal son, Mr. Ackman’s arrogance may be diminishing. As regards Herbalife, he told the New York Times that he had learned his lesson and would have been “better off staying in the shadows” and refraining from public accusations that the company was a pyramid scheme. He added, “This is my last public short.”

But he has some ways yet to go to reach humility. He still insists that Herbalife’s stock will hit zero despite its trading at a price higher than when his public vendetta began four years ago.

Instead of such idle boasting, Mr. Ackman should apologize for seeking to crucify Herbalife on a cross of PSCM profits, and cease growing old without growing wise. Otherwise, he may find himself destroyed by the Gods for continuing his arrogance.

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Beginning Of The End For Swaggering Hedge Fund Billionaire?

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