Bill Ackman Wins 2014

This has been a very difficult and humbling year for most hedge fund managers. But billionaire William Ackman is doing great, distinguishing himself as the hedge fund manager of 2014 by trouncing just about all big shot money managers and the U.S. stock market with a series of bold and closely-watched bets that have performed very well.

Ackman’s incredible year seems to have peaked with Monday’s announcement that Actavis has agreed to buy Allergan , the biggest single position of Ackman’s portfolio. Ackman’s Pershing Square hedge fund has made more than $2.2 billion in paper profits from the position. Valeant Pharmaceuticals had teamed up with Ackman in an effort to purchase Allergan, which turned into a bruising hostile takeover fight that looked like something out of the 1980s era of corporate raiders. Ackman’s Allergan trade was creative and controversial, even producing accusations by Allergan that Ackman had committed insider-trading. But while Valeant on Monday conceded defeat and lost its long quest to get Allergan, Ackman won because he owned shares of Allergan, which are up another 5.6% on Monday and have soared by 88.9% this year.

It wasn’t that long ago that Ackman seemed to be confronting some serious problems. Just about one year ago, Ackman’s big position in JC Penney was crashing and his huge short bet against Herbalife was zooming in the wrong direction. Ackman found himself opposed in Herbalife by some of the nation’s biggest investors, like Carl Icahn and George Soros, and even one of the nation’s most revered executive managers, William Stiritz. Ackman’s Pershing Square was on its way to a third straight year of returns that trailed the broader U.S. stock market's performance.

For Ackman, a key moment was late August 2013, when he sold Pershing Square’s stake in JC Penney for $12.91 per share, a relatively small discount to where the stock was trading at the time, in a $500 million block trade. Pershing Square booked a big loss in the hundreds of millions of dollars, but Ackman had gotten free from an investment that he realized had become a mistake. Shares of JC Penney were recently changing hands for $7.27.

Ackman’s Herbalife turnaround has been even more dramatic. Shares of the diet shake seller closed at $37.34 the day before Ackman stepped onto a Manhattan stage to explain why he believed Herbalife was a pyramid scheme that would collapse. In the months that followed, Herbalife’s stock would trade as high as $83.51. It seemed like Ackman was in trouble until March of 2014, when Herbalife disclosed it was under investigation by the Federal Trade Commission. Herbalife seems to have since changed its business operations in a meaningful way and Herbalife’s revenue and profit machine has started to sputter as a result. Herbalife’s stock is down by more than 50% in 2014 and was recently trading for $38.41.

In 2014, everything has gone right for Ackman. Pershing Square’s position in Burger King Worldwide is up 40% and its position in Canadian Pacific is up another 35%. Even when Ackman lost, like in the case of Fannie Mae and Freddie Mac, things didn’t end so badly. Shares of the government sponsored enterprises got hit hard by a legal ruling a few weeks ago, but Ackman’s position in the common shares did not get whacked as badly as the preferred shares. Pershing Square's overall hedge fund net returns in 2014 are probably starting to approach 40%.

This has all made for quite a comeback. In the fall, Ackman even raised $3 billion in permanent capital by listing a vehicle on the Amsterdam Stock Exchange. He now oversees some $18 billion and is continuing to act aggressively even as he hits the home stretch on the year. In the case of Valeant, Ackman has moved to potentially snatch even more victory from the jaws of nominal defeat. Last week he disclosed a big stake in Zoetis, a company that an acquisitively hungry Valeant might be interested in gobbling up now that Allergan is off the table.