Ackman defends lossmaking Herbalife bet

Bill Ackman has responded to investors’ questions over his lossmaking bet against Herbalife, after representatives for the company contacted several of them telling them to re-examine their investments in his fund.

The Pershing Square founder penned a seven-page letter that again claimed Herbalife, a seller of nutritional supplements, is a pyramid scheme, and assuring investors that he had more evidence that he has yet to make public.

Mr Ackman’s year-long campaign against Herbalife, which says its business model is legitimate, has left him with losses estimated at more than $500m, as the company not only failed to collapse but in fact soared to new share price records.

The investment bank Moelis & Co contacted Pershing Square investors in recent months urging them to assess whether Mr Ackman’s Herbalife bet revealed poor judgment and lax risk controls that meant the fund was unsafe for institutional investors.

Contacting an activist hedge fund’s investors, in the hope of exerting pressure on the fund’s manager, represented a novel defence tactic against corporate activists, and Mr Ackman lashed out in his Monday letter to Pershing Square investors.

“In our experience, Herbalife’s response is unprecedented in the history of short selling. The company has hired public relations firms, lobbyists, law firms, an investment bank, and paid-for spokespeople to attack us in the media, on social networks, and in the halls of Congress,” he wrote.

“Herbalife has spent tens of millions of dollars attacking Pershing Square, going so far as to engage Moelis & Co in a campaign to convince Pershing Square investors to redeem from the funds in an attempt to force us to exit our position.”

Moelis declined to respond.

The investment bank has contacted institutions, including pension funds, that have put money with Mr Ackman, asking them to consider whether his campaign against Herbalife has shifted from a considered investment to a crusade.

Mr Ackman has continued to press his public case against the company in letters and public appearances, even as the share price reflected how his arguments have gained little traction with investors.

Mr Ackman’s letter was pitched as a “review” of the Herbalife position, which was publicly revealed on December 20 last year, and argued that a regulatory investigation of its allegations would bear fruit.

The letter began by saying “our goal in communications with you is to give you the information we would want if our positions were reversed, that is if we were the investor and you were the investment manager”.