November has not been kind to Eddie Lampert, the founder of hedge fund firm ESL Partners. With his flagship fund’s largest holding posting double-digit losses since November 6 — after more than doubling through October — and its second-largest holding also posting a double-digit drop since mid-October, Lampert’s fund has lost a significant chunk of its year-to-date gains.
ESL had been perhaps the highest performing hedge fund so far this year, up around 75 percent or so through the end of October. But since Election Day, Sears Holdings, the embattled retailer which for several years has been ESL’s largest holding and which accounted for 42 percent of ESL’s U.S. equity assets at the end of the third quarter, has sunk about 35 percent, to $43 or so. Meanwhile, AutoNation, ESL’s second largest holding and another popular holding among hedge funds, is down more than 20 percent since mid-October and is now up just 8 percent year-to-date.
These sudden price reversals have had a big impact on ESL, since Sears and AutoNation combined to account for roughly 80 percent of ESL’s total equity assets at the end of the third quarter. The hedge fund is now up an estimated 25 to 30 percent or so for the year through November, though that’s still better than the majority of its peers. (ESL would not comment on its returns.)
Lampert is not the only manager to have endured Sears’ wild swing. At the end of the third quarter, Sears stock was one of the most widely held stocks among all hedge funds, landing among the top-10 holdings among 44 hedge funds, according to Goldman Sachs. It is not clear why the stock has been falling since November 6, given that it wasn’t until November 16 when it reported quarterly results that showed a wider loss and a big revenue decline from the same period a year earlier. And although there were fewer Kmart and Sears stores, the company still reported another decline in domestic comparable store sales. But Sears’ stock is still up nearly 40 percent this year.
Gap, ESL’s third largest holding, remains a big winner, up about 93 percent year-to-date. However, in the third quarter ESL unloaded more than one-third of its stake in the rebounding retailer, so it took a big portion of its gains off the table.
Meanwhile, Lampert continues to pare some of his other large holdings. On Wednesday he reported reducing ESL’s stake in AutoNation to around 34.6 million shares, from 48 million shares in June. Lampert personally owns an additional 18.57 million shares of the stock; altogether ESL and Lampert own more than 53 million shares. Lampert also personally owns more than 22.7 million shares of Sears.
This means he has personally made more than $300 million on two stocks alone: $272 million on his own Sears shares and more than $36 million on his AutoNation stake. However, don’t look for him to sell any of these shares in the near future. It seems Lampert has a lock-up agreement with the investment firm, which restricts him from buying or sell shares of Sears and AutoNation.
