Bill Ackman's year hasn't exactly gone to plan. After enduring billion-dollar losses in Valeant, his hedge fund management company, Pershing Square Capital, needs nothing more than a very big win.
Ackman's on the hunt for big winners, but he's also been cutting from some of his company's largest positions. Thanks to regulatory rules that require large asset managers to publicly disclose their holdings, we now know Ackman has been selling shares of Zoetis (NYSE:ZTS), Canadian Pacific (NYSE:CP), Air Products & Chemicals (NYSE:APD), and Platform Specialty Products (NYSE:ESI). His lone buy: Chipotle Mexican Grill (NYSE:CMG).
Some oddball sales
The regulatory filings that show what asset managers are buying and selling are inherently incomplete, as they only report stocks that investors owned as of September 30, 2016. That means short-sales and stock options are not disclosed. In Ackman's case, his billion-dollar short against Herbalife will never show up in a filing, for example.
It also means investors have to supplement the filings with additional sources to truly understand the moves prominent hedge fund managers are making. Case in point: Air Products & Chemicals.
According to the 13F filing, Pershing Square sold about 3.6 million shares of Air Products & Chemicals this quarter. An earlier 13D filing shows a similar reduction in shares owned by Pershing Square and affiliated funds as of September 12, 2016.
Ackman's interest in Air Products & Chemicals has recently taken the form of stock options rather than common stock, adding complexity and unknowns about Pershing's real stake in Air Products & Chemicals.
Pershing Square said it sold Air Products to "return capital to the PSV Funds co-investors," pointing out that the funds had a three-year commitment period, after which its investors could cash out.
Pershing Square's sale of Platform Specialty Products has a similar quirk. Investors shouldn't make much of it. Pershing noted it sold the stock to "generate a tax loss" for its taxable American investors. It did not sell shares of Platform Specialty Products in its foreign funds. In short, the sale likely has more to do with tax minimization than a particular view on the company's valuation or prospects.
Cashing in the chips on Canadian Pacific and Zoetis
Luckily, not all holdings are as difficult to understand or follow as Air Products or Platform Specialty Holdings. We know Ackman simply cashed in on Canadian Pacific and Zoetis during the quarter. This was choreographed in a series of regulatory filings and investor calls prior to the filing of Pershing Square's 13F.
On August 3, Pershing Square filed a 13D showing that it did not have any stake in Canadian Pacific in any form. The filing also noted that Ackman would step down from the company's board of directors following the sale of Pershing Square's holdings. Ackman is simply taking his profits here and going home. Canadian Pacific was a massive activist-style win for Pershing Square.
On the other hand, Zoetis was an activist investment that never really went anywhere. Regulatory filings show that Pershing Square sold about 18.5 million shares, or roughly 87% of its reported holdings, as of June 30. On its regular quarterly call with its investors held on November 10, Pershing Square indicated it sold out of Zoetis altogether.
Ackman's burrito bet
Pershing Square now holds a substantial stake in Chipotle, but much of it was purchased after the end of the quarter. The most recent regulatory filing shows that Ackman purchased about 2.9 million shares, about 9.9% of the the company, on behalf of funds he manages.
In a recent interview, Ackman explained Chipotle as a return to Pershing Square's roots as a buyer of undermanaged, temporarily challenged businesses. Restaurants have been very good to Ackman and Pershing Square. The company made billions on Restaurant Brands International, a holding company that includes the Burger King and Tim Horton's brands. It first acquired a stake in Burger King in 2011, believing operational improvements would boost its fortunes -- and its profits.
For its part, Chipotle wasn't too happy to see Ackman taking a stake in the company. Reuters reported that the company responded by "hiring high-profile investment bankers and lawyers to help defend" against him should a public battle unfold. It also hired a public relations company.
Things may be changing, though. On a recent conference call, Pershing Square called its relationship with Chipotle management "extremely constructive" and suggested its investors shouldn't be worried about the company getting involved in a hostile situation.
In an amusing twist, Chipotle is becoming something of a support group for Valeant's biggest losers. Pershing Square joins Ruane, Cunniff & Goldfarb, a value shop with ties to Warren Buffett that once had nearly 30% of its marquee fund tied up in the pharmaceutical company, as a recent buyer of the stock.