| |||||||||||
| |||||||||||
As competing hedge funds to the left and right of him collapse, are slammed with redemptions and suffer up to 50% performance declines, his firm has remained in relatively good shape. Pershing's three main funds, Pershing Square LP, Pershing Square International Ltd. and Pershing Square II LP, have recorded performance declines in 2008 of 13%, 11.9% and 11.2%, respectively, according to a Jan. 22 investor presentation obtained by The Deal. Not bad considering the overall hedge fund industry was down almost 19% for 2008, according to Hedge Fund Research Inc. Pershing's short bets on the ailing bond insurers MBIA Inc. and Ambac Financial Group Inc. and its wildly successful investment in Longs Drug Stores Inc. just before it was sold to CVS Caremark Corp. have helped the firm avoid the heavy bleeding suffered by some of its peers.
According to a Feb. 5 letter to Pershing IV investors from Ackman obtained by The Deal, the Target fund declined another 40% in January, eclipsing the 9.6% decline suffered by Target's stock. The fund owns a a 2-to-1 leveraged interest in Target principally through stock options, which in good times can magnify gains, but in bad times can intensify losses. It was bad times indeed, as Target's stock fell just over 30% in 2008. A large part of the fund's decline is due to leverage of now out-of-the-money options held by the fund and a substantial drop in Target's option volatility, Ackman's letter explained. Ackman, however, is mostly sharing his pain with his own kind. About 65% of the initial $2 billion investment in Pershing's Target vehicle launched in mid-2007 is from other hedge funds, according to a Sunday letter to investors published in a Monday Wall Street Journal report. At least Ackman is not treating his hedge fund investor as many hedge funds have treated their own investors. In the Sunday letter, he said Pershing expects to redeem any and all investors who choose to exit in March in full and in cash. None of the gates, in-kind distributions or withdrawal suspensions as have occurred industrywide. And there's more. He has suspended the fund's management fees and incentive fees (the latter of which are not being collected anyway, since they are performance-based). Furthermore, Pershing is waiving incentive fees on Pershing IV investors that invest in Pershing's other funds until they recoup their Target losses. Ackman, however, is not giving up on Target, putting some more skin in the game, having personally invested an additional $25 million in the fund, according to the Feb. 5 letter. Maybe he expects his complex real estate spinoff plans to pay dividends one day. On Nov. 19, he released a 79-page proposal that called for Target to form a REIT that would own the land under its stores and spin off 20% of that REIT in an initial public offering. He predicted that a REIT spinoff could help unlock the value of Target's real estate and lift its shares to about $79 by 2010. Target is a long way from $79, as it closed at just shy of $33 on Friday. - Michael Rudnick CategoriesPrivate capital video
Categories
Blog roll
Archives
| |||||||||||
Activist investor William Ackman of New York hedge fund Pershing Square Capital Management LP seems to have been somewhat bullet-proof -- except when it comes to his investments in discount retailer Target Corp.
|
|
|
|
|
