A little more than a week ago, in Manhattan's AXA Equitable Center, hedge fund manager Bill Ackman delivered a bizarre three-and-a-half-hour presentation building upon the case for his Herbalife short, a $1 billion position he's spent the better part of two years and $50 million defending.
The presentation fell flat not just with the media and institutional investors in attendance — Herbalife shares gained 20%, or more than $13, over the course of the day — but also with the handful of potential early investors in the IPO of Ackman's Pershing Square Capital expected later this year. They had come to see the road show before the road show, so to speak, and left, in some cases less than halfway through the presentation, with more uncertainty about Ackman than when they'd entered the auditorium that hot Tuesday morning.
Ackman now admits that the presentation was "bad" and a "PR failure." Had it been an isolated event, it wouldn't have been so bad. But as just the latest in a series of strange public appearances, among them a televised fight on CNBC with rival Carl Icahn, two instances of shedding tears, and a barely legal move to team up with the Canadian pharmaceutical conglomerate Valeant Pharmaceuticals to acquire Botox-maker Allergan, sources said that Ackman has dug himself a deep hole out of which to climb if he is to convince investors that he is fit to lead a public hedge fund.
"I'm just not aware of any situations where someone has tried to go public and had such bizarre behavior, so that's going to hurt the IPO," said Dan Weaver, professor of finance and an IPO expert at Rutgers University.
A representative for Ackman and Pershing Square declined comment for this story.
Ackman, it could be argued, made his personal IPO to the world in 1995 when he and a Harvard classmate launched a very public bid to buy Rockefeller Center via their Gotham Capital investment firm. Though they lost the bid, Gotham went on to amass more than $500 million in assets in its first six years by making prescient investment bets, and later shorting bond issuer MBIA, among others.
After closing Gotham and striking out on his own with the founding of Pershing Square in 2004, Ackman took on such high-profile targets as Wendy's and, no pun intended, Target. Later came activist stakes in Canadian Pacific Railroad, J.C. Penney, Borders, and Allergan, among others, some of which he publicly won big, such as the $800 million he made off of Canadian Pacific, and some of which he lost even more publicly, as with J.C. Penney, which lost thousands of jobs, and cost his fund $500 million under his watch.
Ackman is perhaps known best, if not admiringly, for his attacks on nutritional supplement company Herbalife, calling it a massive pyramid scheme and crying fraud over its practices of targeting mostly poor minorities with its health and weight-loss regime for the last 18 months.
In addition to Icahn, Ackman's Herbalife zeal has also pitted him against well-liked and well-respected investment banker Ken Moelis. Moelis served as an early adviser to Herbalife after Ackman took his stake, and went so far as contacting Ackman's clients and telling them to pull their money out of the hedge fund. Incensed, Ackman publicly attacked Moelis around the time of the pricing period for the IPO of his eponymous Moelis & Co., boutique investment bank and has spent the last few months going after him in the press, going so far as to call his firm "not a real investment bank" during last week's presentation.
Ackman's attack on Moelis is not exactly a smart move ahead of his own fund's impending IPO, said one hedge fund manager who requested anonymity.
"If he's worried about his own IPO, attacking the biggest private investment IPO when it happened was not exactly sensible," this manager said. "Moelis has more access to rich people and people who buy IPOs and who price these things than anyone in the country, and it's just nuts to attack him."
A representative for Ken Moelis had no comment on Ackman.
Taking Pershing Square public is, in a very real way, a natural and logical extension of Ackman's affinity for public battles with public companies and public personalities. The now roughly $11 billion hedge fund is up an industry-best 23% so far this year. Reports and sources expect a post-Labor Day road show and an ultimate listing on a European stock exchange, most likely in London, sometime in the late fall or early winter.
If the IPO is able to generate a return, investors should be happy and Ackman's recent behavior shouldn't be an issue, said Jacqueline Garner, the John Nutie and Edie Dowdle Professor of Finance at Mississippi State University. But, Garner added, Ackman's recent poor bets combined with his strange public displays could influence how investors receive Pershing Square's IPO.
"Certainly, the hedge fund is the manager — it's hard to separate that. To the extent that he's perceived as too much of a cowboy so to speak — the 'I do whatever the heck I want to do' attitude — if he is perceived that way, yes, that could hurt. To the extent that his irrational behavior creates a perception that he's going to make irrational investments, that could scare some people away," Garner said.
Still, Ackman has his supporters, among them Whitney Tilson, founder of hedge fund Kase Capital. Tilson, who is also short Herbalife, said that Ackman's position shouldn't do much harm to his credibility ahead of Pershing Square's IPO.
"I think the overwhelming majority of investors in the world have no position in Herbalife, so the real question is, are they going to be deterred because Bill has gotten some bad press related to Herbalife and, in particular, acutely bad press after the presentation, and I think the answer is no, or very few will," Tilson said. "At any point in time, every investor in the world has something in their portfolio that hasn't worked yet, and Bill just happens to be very public, so it gets a lot of publicity — but the totality of his investment record is exceptional."
Tilson even went so far as to defend Ackman's penchant for hedge fund industry infighting.
"Ken Moelis went to war with Bill in going to Bill's investors and encouraging them to pull their money. Bill called him out for doing it, and I think he was right to do so," Tilson said. "I don't think many people will remember a squabble between two very powerful men, be it Bill Ackman and Carl Icahn, Bill Ackman and Ken Moelis, Bill Ackman and Dan Loeb, or Bill Ackman and Bill Stiritz. And at the end of the day, this is one small position in Bill's portfolio, and any sensible investor is going to look at the big picture."
Or perhaps, the common thread.