| Jeffrey Ubben, CEO and CIO of San Francisco–based ValueAct Capital (Photo credit: Thomas Broening). |
One of the largest and most successful activist hedge fund firms is shrinking.
ValueAct Capital, headed by Jeffrey Ubben, told investors in its first-quarter letter sent out in early April that it is returning some of their capital. While the exact amount is unclear, the total is “less than 15 percent,” according to an investor who saw the letter. At the end of 2016, ValueAct had $17 billion under management. Ubben did not respond to several requests for comment.
The return of capital is not too surprising, given that back in February, Ubben told attendees at a Reuters conference that he was considerably bearish and was putting about $3 billion into cash.
“We’re very late cycle,” Ubben reportedly said at the time. “I’m disinvesting. The stuff we’re finding is not thematic. It’s very specific.”
Like many activists, ValueAct raised a good deal of money in recent years as the activist strategy became a Wall Street favorite. The firm was managing about $9.2 billion at the beginning of 2013.
ValueAct’s flagship fund gained 5.44 percent in the first quarter of this year, which is pretty good for an activist fund. It returned 4 percent last year, surging more than 12 percent in the second half of the year.
Ubben doesn’t like to be called an activist; he sees himself as a long-term value investor who sometimes gets heavily involved in management decisions. His reputation was partly made — and then tarnished a bit — by ValueAct’s early big bet on Valeant Pharmaceuticals International. At year-end ValueAct was one of the largest, and longest tenured, shareholders of the embattled drug company, which had long been a huge winner for the hedge fund firm until an accounting and pricing scandal knocked Valeant’s stock down 86 percent last year and another 34 percent this year. In March ValueAct bought an additional 3 million shares of the company, boosting its stake to 5.2 percent.
In a regulatory filing, ValueAct said the stock was undervalued and “represented an attractive investment opportunity.” The purchases came the same day Pershing Square Capital Management dumped its entire stake of more than 18 million shares.
ValueAct took its initial stake in Valeant in 2006. It helped Valeant identify major cost savings and sell its pharmaceuticals pipeline so it could focus on its branded generics business, which was deemed less volatile at the time. This enabled the company to slash its research and development budget by more than half. In 2008, ValueAct also recruited J. Michael Pearson from consulting firm McKinsey & Co., where he had spent 23 years, to serve as chairman and chief executive officer of Valeant. In 2010, Biovail Corp. acquired Valeant for $3.2 billion and then retained the name Valeant.
Like most activist funds, ValueAct runs a concentrated portfolio, typically holding a little more than a dozen stocks. At year-end, its three largest U.S. stock positions were in Microsoft, Baker Hughes, and 21st Century Fox.
It also holds a large stake in London-based aircraft engine maker Rolls-Royce, which does not show up in the quarterly 13F filings since the stock trades on a non-U.S. exchange.
Last month, Alliance Data Systems, a marketer of private-label credit cards, said its board unanimously recommended the nomination of ValueAct partner Kelly Barlow as director at the company’s annual meeting.
In February ValueAct disclosed it owns 7.1 percent of Bioverativ, a biotechnology company spun off from Biogen that officially began trading on February 1. In a regulatory filing the investor said the stock was “undervalued and represented an attractive investment opportunity.”
