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Activist U.S. hedge funds hurt by late-year stock tumble

Stock MarketsJan 03, 2019 04:45PM ET
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© Reuters. FILE PHOTO: Hedge fund manager Daniel Loeb speaks during a Reuters Newsmaker event in New York

By Svea Herbst-Bayliss

BOSTON (Reuters) - Widely followed activist investors Daniel Loeb, Barry Rosenstein and William Ackman suffered heavy losses in December, when fears about trade battles and slower growth sent stocks spiraling lower.

Many fund managers are still compiling annual returns, but early data from some of the industry's most prominent firms shows how December's stock market tumble erased gains at many funds. At others, the fall expanded small losses into bigger ones.

Early data from Hedge Fund Research shows that the average hedge fund lost 6.7 percent last year, slightly more the S&P 500's 6.2 percent loss. Data for activists' funds full-year returns have not been finalized.

Loeb's Third Point, fresh from settling for board seats at Campbell Soup Co, told investors its Third Point Partners fund closed 2018 with a 10.7 percent loss after sinking 6.2 percent in December. The Third Point Ultra fund lost 7.8 percent in December to end 2018 down 14.7 percent.

Rosenstein's Jana Partners Fund ended 2018 with an 8.1 percent loss after falling 10 percent in December, according to an investor update. Another portfolio, which tracks only the firm's activist positions, was up roughly 20 percent in 2016 and 2017, an investor said, but its 2018 return could not be obtained.

David Einhorn, an occasional activist, put up some of the industry's worst numbers, nursing a 9 percent loss in December and a 34.1 percent drop for the year. Several investors said they have now pulled their money out, prompting some speculation about his future.

Several prominent hedge funds closed down last year and investors said more closures are expected.

December's stock market rout also hurt William Ackman's Pershing Square (NYSE:SQ) Capital Management. But the manager, who vowed to make 2018 his comeback year, finished with a small gain in one fund and roughly flat in another.

Pershing Square Holdings fund lost 10.8 percent in December and ended 2018 off 0.7 percent. Pershing Square International ended the year up 1.8 percent, an investor said. The firm's capital, however, shrank to $6.8 billion at the end of December from $8 billion at mid-year.

Early in 2018, Ackman cut his staff and promised to shun the limelight as he sought to reverse his returns after three years of losses. For much of the year, Pershing Square was up double digits thanks to gains at investments ranging from Chipotle Mexican Grill (NYSE:CMG) to Automatic Data Processing. Ackman announced new bets on Starbucks (NASDAQ:SBUX) and Hilton Worldwide Holdings late in the year.

To be sure, there were some activist funds, mostly smaller ones, that performed well. Sahm Adrangi's Kerrisdale Capital ended the year up more than 37 percent, an investor said, and J. Daniel Plants' Voce Capital gained 6 percent.

There were wins among other hedge funds, too. Renaissance Technologies LLC's Renaissance Institutional Equities Fund gained 8.5 percent in 2018 while Brahman Capital Corp. posted a 2.4 percent gain, investors said.

Activist U.S. hedge funds hurt by late-year stock tumble

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