Edward Lampert’s ESL Investments has become as much of a shrinking, fading has-been as Sears Holdings Corp., the once-iconic retailer to which Lampert has hitched his reputation and his fortunes.
In his latest form ADV to the Securities and Exchange Commission, Lampert reports that assets have now fallen to $4.2 billion as of December 31, 2013. He also elaborates that this figure includes the main hedge fund, ESL Partners, as well as “certain special purpose liquidating entities held by former investors of ESL Partners and ESL Limited.”
Lampert does not say what percentage of the $4.2 billion is currently active in the fund and how much belongs to former investors who are stuck with these investments. However, the $4.2 billion is down from $5.1 billion a year ago.
Meanwhile, ESL Investments’ reported U.S. stock portfolio, which is publicly disclosed every quarter, was worth just $2.5 billion at the end of 2013. This compares with about $3.8 billion at the end of 2012.
This provides a potentially clearer illustration of how much ESL Investments has shriveled, although it’s difficult to tell sometimes what’s exactly in the firm and the fund. As recently as 2007, when investors reportedly pumped about $3.5 billion into the firm, Lampert managed as much as $17.5 billion in assets, and his clients included Michael Dell and the Tisch family.
In 2006, when ESL managed $15 billion, it was the fifth-largest hedge fund firm in the world. That was only a few years after the New York native and former Goldman Sachs risk arbitrageur merged Sears with another fading brand, Kmart. It was also three years after BusinessWeek asked on its cover whether Lampert was the next Warren Buffett.
However, late last year Bay Harbour, Florida–based ESL Investments faced a rash of redemptions, and it met those requests by issuing shares of Sears. Earlier in the year it used shares of AutoNation to meet redemptions.
The late-year distribution of Sears shares dropped the combined holdings of ESL and Lampert below 50 percent for the first time. As a result, Lampert, who also serves as chairman of Sears, is close to personally becoming a larger shareholder of Sears than of ESL.
When ESL completed the latest distribution of more than 7.4 million shares of Sears to its investors, it was left with more than 26 million shares. Lampert personally owns 25 million shares, although a lockup agreement restricts him from purchasing and selling securities that he owns, according to the regulatory filing.
And he keeps adding to his stash, thanks to his employment contract with Sears. While ESL Investments and Lampert own 26.1 percent of the total outstanding shares of AutoNation — down from 43.7 percent at the end of November 2012 — Lampert personally owns nearly 15 million shares, while ESL and other related partnerships own nearly 17 million more.
Last year Sears’ stock was up 18 percent for the year, while two of ESL’s other three holdings in its very concentrated portfolio — AutoNation and Gap — each rose 25 percent. However, Sears is sinking quickly. Sears traded above $53 as recently as November 25.
It is now about $36.60 following Monday’s spinoff of its Lands’ End business. Remember, back in 2002 Sears shelled out about $1.9 billion to acquire Lands’ End. Today its stock market value is about $1 billion.
Meanwhile, Sears Hometown and Outlet Stores, which Sears spun off in October 2012, currently trades at $22.85, down from an all-time high of $56.65, hit last June.
