Carl Icahn scaled back on his bearish bets in the second quarter. But they still hurt the octogenarian’s investment portfolio.
The activist’s private hedge fund lost another 5.4 percent in the second quarter and is now down 9.3 percent for the first six months of the year, according to the second-quarter report from Icahn Enterprises, his publicly traded company.
This means that the legendary investor trailed the S&P 500 by roughly 29 percentage points in the first half of the year.
According to the report, Icahn’s portfolio has been heavily hurt by its negative bets. In the second quarter, the shorts cost the fund 2.8 percent and the longs lost 3.2 percent. For the year, Icahn has lost 8.9 percent from his shorts and 1.8 percent from his longs.
The report said that the biggest losses on the long side in the June quarter came from a cyclical consumer investment, a healthcare investment, and the aggregate performance of long positions. It didn’t name specific names, but in the second quarter, shares of consumer products company Newell brands fell 30 percent, while biotech company Illumina — an Icahn activist target —dropped about 21 percent.
On the short side, losses for the six-month period were driven primarily by a broad market hedge of $618 million and the aggregate performance of short equity and short credit positions.
Icahn scaled back his short exposure in the second quarter. As of June 30, the investment funds had a net short notional exposure of 18 percent, compared to 38 percent the previous quarter. The long exposure heading into July was 103 percent (87 percent long equity and 16 percent long credit), while the short exposure was 121 percent (101 percent short equity, 14 percent short credit, and 6 percent short other).
Icahn Enterprises is a diversified holding company that owns seven subsidiaries: investment, energy, automotive, food packaging, real estate, home fashion, and pharma. As of June 30, the investment portfolio included $3.8 billion of Icahn Enterprises’ proprietary capital and $3 billion of investments made by Carl Icahn and his affiliates. In the first half of the year, Icahn and his affiliates redeemed $1.452 billion from his personal interests in the investment funds, according to the report.
The losses from the investment funds are just the latest in a string of setbacks recently suffered by the legendary investor and his company. In the second quarter, Icahn Enterprises reported a loss that was more than twice the prior year’s loss. It also halved its dividend payout.
In early May, short-seller Hindenburg Research rocked the investment world when it alleged that the value of Icahn Enterprise units were inflated by 75 percent. The firm alleged that Icahn ran a Ponzi scheme, using money from new investors to pay dividends to old investors.
In the second-quarter report, Icahn Enterprises disclosed that it has been contacted by the U.S. Attorney’s office for the Southern District of New York and by the Division of Enforcement at the Securities and Exchange Commission. The firm said that the regulators are seeking information relating to corporate governance, capitalization, securities offerings, disclosure, dividends, valuation, marketing materials, due diligence, and other materials.
“We are cooperating with these requests and are providing documents in response to these voluntary requests for information,” Icahn Enterprises said in the filing. “We believe that we maintain a strong compliance program and, while no assurances can be made and we are still evaluating these matters, we do not currently believe that these inquiries and litigations will have a material impact on our business, financial condition, results of operations, or cash flows.”
Shares of Icahn Enterprises closed Wednesday at around $24, roughly half the closing price the day before the Hindenburg report was made public on May 2.
