A flurry of announcements Monday morning from Valeant Pharmaceuticals sent its stock surging more than 10 percent when the stock market opened.
Valeant said it has launched a search to replace chief executive officer J. Michael Pearson. In addition, William Ackman, CEO of Pershing Square Capital Management, which owns 9 percent of the shares, is joining the board of directors. The board also asked former chief financial officer Howard Schiller to resign after the board’s Ad Hoc Committee determined that he and the former controller engaged in “improper conduct,” which caused the company the previously report “incorrect information,” causing it to restatement prior results.
In a separate statement, Schiller denied the accusations. As a result, he said he will not resign from the board.
Despte the drama, the market’s strong positive reaction to these announcements is certainly some sort of relief among many of the hedge fund firms that have been paying a big price for their big commitment to the deeply troubled Laval, Quebec–based Valeant Pharmaceuticals International.
We recently chronicled a number of high-profile hedge funds with big positions in the reeling drugmaker. The poster child for the damage done by imploding Valeant shares is Ackman’s New York–based Pershing Square, whose funds are now down more than 26 percent for the year, in large part due to the firm’s Valeant stake.
At least one other high-profile hedge fund firm, John Paulson’s New York–based Paulson & Co., is reportedly down more than 10 percent thanks to its big bet on Valeant.
Jonathan Auerbach’s New York–based Hound Partners was down 10.6 percent through February, thanks in part to Valeant, its second-largest U.S. long position entering the year. Chances are it has extended these losses since Valeant is off another 58 percent in March already.
However, one major Valeant investor who was not taking a major beating this year in his overall portfolio even before Monday’s announcements is Jeffrey Ubben’s ValueAct Capital, even though Valeant was its second-largest U.S. long at the end of the second quarter and its third-largest position overall.
The San Francisco hedge fund firm is down only about 5 percent for the year as of late last week, when the Standard & Poor’s 500 stock index was down just 1 percent, according to a source who has seen the firm’s results. This is because most of ValueAct’s other top holdings are either making money or roughly flat in what’s already been a dramatically topsy-turvy year.
ValueAct’s performance underscores that savvy stock picking can help offset a huge losing position. Remember, at year-end ValueAct had more than $14 billion in U.S. equity assets spread across just 14 individual issues. Altogether, the San Francisco firm currently has more than $19 billion under management, including nearly $3 billion in cash.
Microsoft Corp., ValueAct’s largest position at year-end, was down about 10 percent through the first two months of 2016. However, the technology company has rebounded and is now off less than 1 percent for the year through late last week.
London-based Rolls-Royce Holdings, ValueAct’s second-biggest position overall, is up 20 percent this year. We recently reported that shares of the engine maker are the only high-quality investment that has met ValueAct’s valuation parameters in the past 12 months.
Meanwhile, Adobe Systems, ValueAct’s fourth-largest long overall, is roughly flat for the year after receiving a big boost on Friday. Credit Suisse raised its price target on the stock from $70 to $85 after the enterprise-software maker reported fiscal first-quarter results that exceeded Wall Street expectations.
Twenty-First Century Fox, ValueAct’s fifth-largest position, is up 4 percent for the year, while Motorola Solutions, the hedge fund firm’s sixth-largest position, is up 6 percent for the year.
ValueAct’s only other large loss among its top holdings is CBRE Group, the commercial real estate services and investment company. The stock was off 21 percent through late last week.
All in all, not bad for a concentrated fund that for the most part does not hedge.
