Ackman explains "mistakes" to Pershing investors

American hedge fund manager and activist investor Bill Ackman has written to investors to explain his recent headline-hitting activities in a regular quarterly letter.

Ackman heads up Pershing Square Capital Management, whose funds remained more or less flat in the most recent quarter (for the first half of the year, returns ranged from 5.3 to 6.3 percent, net of fees).

He’s hit the headlines recently for taking a costly short position against Herbalife – which he claims is an abusive pyramid scheme – and a public battle with JC Penney culminating in his resignation from its board.

Ackman was on the defensive early, saying “we are going to make mistakes” under a section titled "Mistakes". He added that such mistakes are often much more visible than other investment companies due to the large pool of capital it manages and investment in high-profile companies.

Ackman defended his $1bn short bet against Herbalife – which has so far cost the fund nearly $300m – saying the fund has made “material progress in attracting federal, state and international regulatory interest in Herbalife”. He said he couldn’t disclose details, but believes the “probability of timely aggressive regulatory intervention has increased materially”.

Ackman resigned from the board of retailer JC Penney after starting a public rebellion against fellow directors over the future of the company. Pershing is JC Penney’s biggest investor, with a 17.7 per cent stake in the company. He said in the letter that the company’s stock is trading more than 40 per cent below the hedge fund’s average cost in buying it. “Clearly retail has not been our strong suit, and this is duly noted."

Although he wouldn’t disclose future movements, he did say this:

After our failed proxy contest at Target, we held our investment for more than 19 months until the price rose to a level where we found better uses for our capital. We may choose to exit J.C. Penney after more or less time depending on developments at the Company, the stock price, and the availability of other investment opportunities.

Here’s the letter in full:

Pershing Square Second Quarter Investor Letter Bill Ackman

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