Bill Ackman, founder and chief executive of Pershing Square, has apologised to investors after his hedge fund recorded its worst ever performance last year.
In 2015, the fund made a 20.5 per cent loss, largely thanks to its large holdings in Valeant Pharmaceuticals. The fund's performance compares to an average 1.4 per cent increase in returns from investments in the S&P 500 over the year.
It was the worst performance year in Pershing Square’s history, even worse than during the financial crisis in 2008 when the funds declined by 12 to 13 per cent, despite the fact that, in Ackman's words "there was no financial crisis except perhaps in the energy, commodity, and currency markets [and] US core growth appears sound."
Ackman said in a letter to investors today:
To be a great investor one needs to first have the confidence to invest at a time when others are highly sceptical about the opportunity you are pursuing. This confidence, however, has to be carefully balanced by the humility to recognise when you are wrong.
While no one here is enthusiastic about delivering our worst performance year in history in 2015, it certainly does a good job reinforcing the humility-side of the equation that is necessary for long-term investment performance.
In 2016, we would like to generate results that reinforce the confidence side of the equation. Humility and skepticism will help get us there.
At the beginning of this month, Ackman defended the decision to increase Pershing's stake in embattled pharma company Valeant, saying he had taken into account its recent troubles and made the most of stock volatility and "extremely low" share prices. He said it offered "a compelling reward for the potential risk".
But today he said: "In retrospect, this was a very costly mistake."
"Our failure to sell stock wasn’t entirely an unforced error as we found ourselves largely restricted from trading during this period," he added, but admitted: "In light of Valeant’s leverage and the regulatory and political sensitivity of its underlying business, we should have avoided becoming restricted to preserve trading flexibility, or alternatively, we should have made a smaller initial investment in the company."
Ackman's letter also revealed that his second in command Paul Hilal is leaving the fund to start his own. Hilal joined Pershing in 2006 as a consultant focusing on technology, becoming full time in 2007 and is now the most important person at the fund, aside from Ackman.
Ackman said Hilal, who is a close personal friend and was his roommate at Harvard, had began to make plans for his own venture two years ago, and he expected they would work together on investments in the future.