Scott Ferguson’s Sachem Head Capital Management has emerged as the top hedge fund firm with a connection to William Ackman’s Pershing Square Capital Management...at least for now.
The New York manager posted a 12.8 percent gain last year in an otherwise difficult environment for activism, not to mention many other hedge fund strategies.
This compares with Pershing Square, which last year lost 20.5 percent, and Richard (Mick) McGuire III’s Marcato International, which lost 9.3 percent. (That fund is managed by San Francisco-based Marcato Capital Management.)
And while all three managers were in negative territory over the first two months of this year, Sachem Head was able to avoid big losses. It was off just 4.2 percent through February.
Pershing Square was down 19.9 percent — and 26.4 percent through mid-March — while Marcato was down 12.8 percent, with virtually all of its losses coming in January. It was down just 0.8 percent in February, and according to a person familiar with the firm, Marcato has been participating in the March market rally.
Ferguson was the first analyst at Pershing Square, which he joined in September 2003, and became a partner after nine years with the New York firm. He left in 2012 to launch Sachem Head in November of that year. He began accepting outside investment in July 2013.
In 2014, Ferguson’s first full year managing outside money, Sachem Head posted a 22.5 percent gain, according to an investor in the fund. By the end of 2015, the firm managed $4.4 billion, excluding a $375 million drawdown fund.
Ferguson has sometimes teamed up with his mentor to build a stake in an activist position. One of the more notable ones was Zoetis, the animal health company that has been a major holding of Ferguson’s for at least 1.5 years. Sachem Head has also been a major shareholder of another Pershing Square favorite, Allergan.
Otherwise, it goes its own way.
For example, one stock Sachem Head has not owned over the past few quarters is Valeant Pharmaceuticals International, the big Ackman favorite that is down more than 80 percent from its August high, even after Monday’s big jump in price.
In the second quarter, Valeant accounted for 5.4 percent of Sachem Head’s assets. The two stocks alone accounted for nearly 14 percent of Sachem Head’s total equity assets, while Allergan accounted for 8.5 percent of assets. That was when Ackman was calling on Allergan to call a special shareholder meeting and sell itself to Valeant.
However, by the end of the following quarter, Sachem Head was completely out of Valeant and never got back in again.
Like many activists, Sachem Head runs a concentrated portfolio; just 11 stocks comprised its $3.16 billion U.S. long portfolio at year-end. Its biggest position was also one of its two new investments made in the fourth quarter: Autodesk, accounting for roughly one-quarter of the firm’s equity long assets.
Since the firm disclosed owning 5.7 percent of the maker of 3-D design software back in early November, the stock has been flat. However, it has surged about 30 percent since Sachem Head started aggressively building its stake in early October.
About a week or so ago, Autodesk named three new directors, including Ferguson, under a settlement reached with Sachem Head and Eminence Capital, the New York hedge fund firm headed by Ricky Sandler. Ferguson will also join the board’s compensation and human resources committee.
The stock is popular among hedge funds but not with Pershing Square and Marcato.
Sachem Head’s second-largest position — roughly equal to the size of its Allergan stake at year-end — is long-time holding CDK Global, a provider of technology and marketing services to auto retailers that was spun off from payroll-processing company Automatic Data Processing in late September. The stock is up 33 percent since then.
In the first two months of this year, AutoDesk was down 15 percent, although it is off only 5 percent for the year so far. CDK was down 5 percent through February and less than 3 percent for the year.
Allergan, the third of Sachem Head’s three biggest positions, was down 7 percent for the first two months and 12 percent through Monday.
