August was a hard month for hedge funds, but the volatile markets looked good to some event-driven managers — namely, activists. That’s because when a stock’s price and its true worth diverge, value-oriented managers can move in. It was no surprise, then, when two activist hedge funds turned up among the 20 best-performing hedge funds in August, according to Chicago-based Hedge Fund Research.
“This is the market, now is the time,” says William Ackman, head of Pershing Square Capital Management, a New York–based activist hedge fund. Pershing Square has $6 billion spread among three funds, including $2.1 billion Pershing Square, up 6.70 percent in August and 7.94 for the 12-month period ended August 30, owing in part to its long-short investing with no leverage, Ackman explains.
Short positions in credit plays on MBIA, Ambac Financial Group, Freddie Mac and Fannie Mae have helped the fund achieve a 27 percent annualized return since its January 2004 inception. Recent long positions included Wachovia Bank and Longs Drug Stores Corp., both of which Ackman says were prime values. (Ackman bought Wachovia after its near collapse for about $3 a share and sold it for $5.70 before Wells Fargo agreed to acquire the bank.)
Hedge funds as a whole were down 1.40 percent in August. But New York–based Barington Capital Group’s $71 million Barington Cos. Equity Partners, the other activist fund among HFR’s top performers, was up 10 percent — although it is down 3.72 percent over three years, a reminder of how tough this business has been and may continue to be.
“We were pleased with our performance in August, but that performance may be difficult to maintain given the volatility in the market,” says Samuel Cassetta, senior managing director and COO at the firm.
