By Jennifer Ablan
NEW YORK, Nov 3 (Reuters) - Just before Bill Ackman gave a
presentation on Friday to defend one of his biggest investments,
Valeant Pharmaceuticals (N:VRX), from allegations of accounting and
insurance fraud, he was taunted by John Hempton, who runs a
small hedge fund from Australia. It was the latest act in a
long-running feud.
In an email he sent Ackman, who is one of the world's
best-known hedge fund managers, was a link to Hempton's latest
critique of the Canadian drug maker's potential problems, one of
the most detailed produced by anyone yet. It concluded that
while Valeant VRX.TO had probably not been artificially
inflating its sales numbers, its relationship with the specialty
pharmacy firm Philidor RX Services "may well cause Valeant to
collapse," taking its share price to zero.
For Ackman's Pershing Square Capital Management hedge fund
that is a scary thought. Pershing's Valeant investment was worth
as much as $5.1 billion at its peak in August, though it has now
lost more than half of that. As of Oct. 31, the fund has lost 19
percent this year, largely because of Valeant, though it did
gain 40.4 percent in 2014.
Hempton said in the email that he should have given Ackman
an advance copy as "it would have helped you prepare for your
call today."
He signed off with "Love as always, John."
It isn't the first time in recent weeks that Hempton has
needled Ackman.
Indeed, Hempton has been attacking Ackman since soon after
Ackman launched a billion-dollar short bet against nutritional
supplement company Herbalife (N:HLF) Ltd in 2012. While Ackman
has a long position in Valeant and Hempton says his fund, Bronte
Capital, is betting against it, the opposite has been the case
on Herbalife, with Ackman short and Hempton long.
In the world of finance, the contrast between the two almost
couldn't be greater. The Adelaide University-educated Hempton,
48, runs less than $200 million of funds from a tiny office he
sometimes sleeps in near Sydney's Bondi Beach. He looks more
like the Australian public servant he once was - with large
round spectacles, while sweaters and jeans are as often part of
his garb as collared shirts and ties.
The 6-ft 3-inch tall Ackman has distinguished silvery locks.
He runs $16.5 billion at Pershing Square with its expensive
mid-town Manhattan offices. He has an MBA from Harvard, is big
on New York's philanthropy circuit, and is impeccably groomed
with perfectly knotted ties and expensive suits.
One investor who has knowledge of both said Ackman can be a
"Master Of The Universe type" while Hempton behaves like an
underdog who wants to get even. Both are "wound way too tight,"
the investor said.
Ackman, who declined to comment for this story, has had
major battles with other investors before. He got involved in a
very public spat with fellow activist investor Carl Icahn over
Herbalife in January 2013.
On his call on Friday, Ackman did praise Hempton for good
some good research on Valeant, before adding that he has "gotten
a lot of things wrong."
THE GRADUATE
Certainly, the tensions between the two have worsened in
recent weeks.
On Oct. 15, only a few days before a story from an
investigative journalist, Roddy Boyd of the Southern
Investigative Reporting Foundation, and a report from short
seller Andrew Left of Citron Research, exposed Valeant's ties
with Philidor and questioned the company's accounting and its
behavior towards insurers, Hempton had teased Ackman in an
email. In a riff off the famous exchange from the movie, The
Graduate, Hempton wrote to Ackman "I just want to say one word
to you. Just one word Philidor."
Ackman, who has never met the Australian, replied: "Not sure
I understand. Perhaps you could explicate further," according to
an email released by Hempton.
Philidor's relationship with Valeant had hardly ever been
referred to publicly by either Valeant or its critics until
then.
Ackman conceded on Friday's call that Valeant may have made
missteps but ultimately was a fundamentally sound company that
would pay fines for any wrongdoing if necessary. He said he
didn't see anything revealed so far that would result in its
collapse.
Hempton, who helped to reveal a number of accounting frauds
among Chinese stocks listed in North America in 2010-2012 and
writes a blog at brontecapital.blogspot.com, is very open about
his distaste for Ackman. When asked last week if he had ever met
Ackman he said he would prefer to "hang out with drug dealers
and prostitutes."
He says he felt fooled back in 2012 by Ackman's arguments
that Herbalife was a "pyramid scheme" that caused "enormous
harm" to "vulnerable communities around the world." Hempton's
own research discovered a Hispanic community in New York and
other cities that said the supplements had helped them lose
weight and improved their lives.
Ackman has firmly stood by his contention that many of the
people who sign up as distributors of Herbalife products are
exploited by the company and end up losing money. He argues that
eventually this structure will implode.
Hempton's recent campaign against Ackman has included
questioning the way Pershing reports its performance and asking
regulators to release documents about a probe it may have
carried out into Pershing over Herbalife. A request that was
declined.
The struggles over Valeant and Herbalife may have taken a
toll on Hempton's results. He says after some very strong years,
Bronte has been generally flat, with some periods of gains and
losses, since 2013.
But he contends it is a viable investment strategy to
deliberately take the opposite path to Ackman. "You can goad him
and he makes his positions bigger," Hempton said. "That is even
better to trade against. It's not a personal obsession - it's a
way of making money."