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Hard to beat the hedge fund compensation model of fee on the way up, fee on the way down. Agnostic to his Herbalife bet, Ackman "has widely underperformed the

Hard to beat the hedge fund compensation model of fee on the way up, fee on the way down. Agnostic to his Herbalife bet, Ackman "has widely underperformed the S&P 500 since its EOY 2012 inception: 7.1% since inception net of fees vs. 84% for the S&P 500. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum." So his first fund killed it, he made a name for himself, raised a ton of money, and has literally cost his investors 75% of their returns to date in the market. He's personally worth $1,400,000,000 now as a result. Every fund pitch everywhere comes with the disclaimer "Past performance is not an indicator of future success" because of funds like Ackman's.

ww520 9y ago
Ackman bet big on Valeant and rode all the way from more than $200/share down to $10/share, losing more than $4B in the process.
jacquesm 9y ago
> Every fund pitch everywhere comes with the disclaimer "Past performance is not an indicator of future success" because of funds like Ackman's. No, it's because of the simple fact that you can't predict the future. That sleazeballs can make it even worse by making funds that pretend that they had yields before they even existed (or were active only in a theoretical sense with a few bucks in it as a fig leaf and the other 999 that got axed you'll never hear about) is taken as a given. That's just the 1024 envelope trick at a higher level.
- btilly 9y ago
  Indeed. I believe that the regulation that requires that disclosure comes from the 1933 law establishing the SEC. A specific concern was how advertising past returns fed into getting people excited about bubbles like the one which popped in 1929. Therefore the regulation was meant to address a systemic problem rather than individual malfeasance.
blunte 9y ago
I find it almost too ironic to see a hedge fund manager righteously calling out another business model.
- thaumasiotes 9y ago
  Herbalife's business model is "pyramid scheme", though. It's worse in basically every possible way, regardless of how poorly you view hedge funds.
  - jjeaff 9y ago
    And hedge funds are only allowed to take money from rather wealthy or "sophisticated" investors that should know better. Herbalife preys on the poor and down trodden.
lordnacho 9y ago
> Agnostic to his Herbalife bet, Ackman "has widely underperformed the S&P 500 since its EOY 2012 inception: 7.1% since inception net of fees vs. 84% for the S&P 500. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum." But why should the S&P 500 be the benchmark for what Ackman does? If he was advertising that he's betting on broad market risk it would make sense, but he's not. He's long/short high concentration, which you could argue he's also not done fantastic at, but with a small number of positions you'd expect a wide potential spread of returns.
- PeterisP 9y ago
  The "market average" like S&P is the expected return of passive investment - doing nothing, so that's why it's a reasonable benchmark. This (not 0%) is the straightforward default alternative investment, the one against you can measure an opportunity cost. The point of hedge funds is that they can do better than that, but charge a fee. However, if you get worse results than doing nothing, then the fee seems unjustified.
  - dsacco 9y ago
    The commenter you're responding to is aware of all of that, as he works in the industry. With regard to "the point" of hedge funds, what you're saying is not actually correct - the S&P500 is not necessarily an appropriate benchmark for comparison because it doesn't share the same risk profile. Concordantly it is not necessarily a failure if a hedge fund achieves a lower return than the S&P500 depending on its beta exposure. In general, the S&P500 presents the most cursory comparison metric for hedge funds, but not necessarily the most accurate. This is specifically why we have the term, "risk-adjusted returns."
    - nappy 9y ago
      Excellent comment

ww520 9y ago

Ackman bet big on Valeant and rode all the way from more than $200/share down to $10/share, losing more than $4B in the process.

jacquesm 9y ago

> Every fund pitch everywhere comes with the disclaimer "Past performance is not an indicator of future success" because of funds like Ackman's. No, it's because of the simple fact that you can't predict the future. That sleazeballs can make it even worse by making funds that pretend that they had yields before they even existed (or were active only in a theoretical sense with a few bucks in it as a fig leaf and the other 999 that got axed you'll never hear about) is taken as a given. That's just the 1024 envelope trick at a higher level.

btilly 9y ago
Indeed. I believe that the regulation that requires that disclosure comes from the 1933 law establishing the SEC. A specific concern was how advertising past returns fed into getting people excited about bubbles like the one which popped in 1929. Therefore the regulation was meant to address a systemic problem rather than individual malfeasance.

blunte 9y ago

I find it almost too ironic to see a hedge fund manager righteously calling out another business model.

thaumasiotes 9y ago
Herbalife's business model is "pyramid scheme", though. It's worse in basically every possible way, regardless of how poorly you view hedge funds.
- jjeaff 9y ago
  And hedge funds are only allowed to take money from rather wealthy or "sophisticated" investors that should know better. Herbalife preys on the poor and down trodden.

lordnacho 9y ago

> Agnostic to his Herbalife bet, Ackman "has widely underperformed the S&P 500 since its EOY 2012 inception: 7.1% since inception net of fees vs. 84% for the S&P 500. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum." But why should the S&P 500 be the benchmark for what Ackman does? If he was advertising that he's betting on broad market risk it would make sense, but he's not. He's long/short high concentration, which you could argue he's also not done fantastic at, but with a small number of positions you'd expect a wide potential spread of returns.

PeterisP 9y ago
The "market average" like S&P is the expected return of passive investment - doing nothing, so that's why it's a reasonable benchmark. This (not 0%) is the straightforward default alternative investment, the one against you can measure an opportunity cost. The point of hedge funds is that they can do better than that, but charge a fee. However, if you get worse results than doing nothing, then the fee seems unjustified.
- dsacco 9y ago
  The commenter you're responding to is aware of all of that, as he works in the industry. With regard to "the point" of hedge funds, what you're saying is not actually correct - the S&P500 is not necessarily an appropriate benchmark for comparison because it doesn't share the same risk profile. Concordantly it is not necessarily a failure if a hedge fund achieves a lower return than the S&P500 depending on its beta exposure. In general, the S&P500 presents the most cursory comparison metric for hedge funds, but not necessarily the most accurate. This is specifically why we have the term, "risk-adjusted returns."
  - nappy 9y ago
    Excellent comment