By Svea Herbst-Bayliss
BOSTON (Reuters) - Two years ago, investor William Ackman, who pushes corporations to perform better, took his own advice and laid out a plan for a comeback after years of losses.
Over dinner at the New York Public Library, Ackman told investors in January 2018 that he was going back to basics by cutting staff, ending investor visits that were eating into his time, and hunkering down in the office to do research.
Now, Ackman has the numbers to prove his strategy is working.
The Pershing Square (NYSE:SQ) Holdings portfolio, the biggest at his Pershing Square Capital Management firm, returned a stunning 58.1% last year, making it one of the world's best performing hedge funds. It outpaced not only the benchmark S&P 500 stock index's 29% gain, but also the average activist hedge fund's 18.3% return, data from Hedge Fund Research shows.
Ackman has said privately he was going activist on himself to resuscitate his 16-year-old firm, Pershing Square Capital Management, after suffering double-digit losses in 2015 and 2016 followed by smaller declines in 2017 and 2018.
When Ackman next meets investors over dinner in February, he will be able to report that 2019 was his firm's best year ever. Assets stand at $7.4 billion and he will be able to charge performance fees again.
Despite his undisputed bragging rights, investors say they see a more humbled Ackman, who is sticking with the back-to-basics theme. He is staying out of the limelight while methodically searching for his next bets from new offices overlooking the Hudson River.
Ackman declined to comment.
If there was any secret sauce to last year's gains, it included patiently waiting for changes that Ackman had pushed for, often behind the scenes, to pay off, investors said.
Some big winners, including Chipotle Mexican Grill (N:CMG), which returned a whopping 72% over the last year with a new chief executive, have been in the fund for years.
Engagement at Starbucks (O:SBUX), bought in late 2018 and up 40% in the last year, was out of the public eye. Even an investment in Automatic Data Processing (O:ADP), where Ackman lost a bitter proxy contest in 2017, paid off as Ackman and ADP Chief Carlos Rodriguez discussed potential changes over dinner.
Some investors also saw a changed Ackman when he exited his United Technologies (N:UTX) investment after sharply criticizing its planned merger with Raytheon Co (N:RTN). The money could be better invested elsewhere, Ackman said, after having privately mused that he previously had held on to soured bets in drug company Valeant Pharmaceuticals (NYSE:BHC) and Herbalife (N:HLF) for too long.
To be sure, many activists who - like Ackman - had bet portfolio companies would climb, got a boost from a booming stock market. Other firms, like Elliott Management and Third Point, that pursue activist investments plus a range of other strategies, delivered gains in the single- or low double-digits, their investors said.
It may be tough to repeat 2019 but Ackman has noted that Pershing Square has had five years of gains topping 36%.