While we await the latest weekly update from a crushed Pershing Square, to see how far the latest collapse in Valeant stock has slammed the P&L of Bill Ackman’s hedge fund, we know that the picture is not pretty: as of a week ago, the fund was down 21% for the year.
But the biggest mystery is how has this hedge fund, arguably one of the worst performers of the past two years, managed to continue operating without suffering dramatic withdrawals. Are its LPs, especially the recent ones, massochists or are they merely hoping for some miraculous turnaround in Bill Ackman’s fortune?
We don’t know the answer, and Ackman will certainly not divulge his fund’s inbound redemptions requests: there is no more sure way to assure a hedge fund’s demise than to hint to LPs that some other LPs have lost faith. What we do know is that things are starting to crack, and not just for Pershing Square’s LPs ,but for its employees too.
According to the WSJ, Pershing Square has laid off eight lower-level employees this week. The cuts, which largely involve back-office employees in technology and investor services, amount to more than 10% of the activist hedge fund’s staff. They are also just a start as every hedge fund operator knows.
Amusingly, Ackman told his staff this week that the moves have nothing to do with the poor performance of the hedge fund. Instead, he said, the firm has gotten better in technology and automating tasks like filling out new-investor forms, reducing the need for employees.
Oh the irony in needing less people to fill out “new investor forms.” What about the manpower needed to go through all of the redemption requests? Or is there a robot for that?
Just as amusingly, Ackman said “he doesn’t anticipate any other big cuts.”
We expect to follow up on this “timestamp” in a few months. Meanwhile, Pershing Square had $12.3 billion in assets, down roughly 40% from $20.2 billion at the end of July 2015, just before Valeant’s stock started falling.
Ironically, there may be worse news for Ackman’s employees: since Pershing Square is far below its high-water mark, it would need to get back to before employees would receive much of their pay. This means that unlike Starbucks, Ackman won’t even need to cut back on worker hours: the upside here is capped for years if not ever.
Then again, Ackman may be right: Pershing Square may not have to cut any more workers – the workers will just quit on their own, now that any chance of a juicy year-end bonus is gone for good.
The better news: according to the administration, the US economy is in the midst of a strong recovery and anyone who claims otherwise is peddling fiction. Which means all those highly paid (maybe not anymore) workers will be able to transfer their socially valuable skills to other industries where they will be compensated just as richly without having to worry about watermarks, P&L and redemption requests.
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