Hedge Fund Datapoint of the Day

For most of 2007, Target stock was trading in the low 60s. If you’d bought $2 billion of stock at those levels, you’d have about $1 billion today, since the share price now is in the low 30s.

That’s the kind of performance Bill Ackman can only dream of. In 2007 he raised $2 billion for a hedge fund, Pershing Square IV, dedicated to going long Target; today, in the wake of a 40% plunge in January, that fund has dwindled to just $210 million.

The January implosion is particularly surprising because Target stock basically went nowhere over the course of the month: it closed on December 31 at $34.63, and closed on January 31 at $31.20.

Still, hope springs eternal for the fund manager:

“While PSIV and Target stock have declined materially, we still believe our fundamental investment case for Target stock will ultimately be realized, although not within the original timeframe we had initially estimated,” he wrote in the letter dated Feb. 5.

Ackman’s already tried announcing clever ideas about spinning off Target’s property holdings; they led to a brief uptick in the share price in October, but that didn’t last long. He’s not giving up, though: in fact he’s investing another $25 million of his own money into the beleaguered fund, which he says will be wiped out if the stock remains below $35 in two years’ time. This is ultra-high-risk investing: a caricature of what hedge funds do. I wonder what proportion of Ackman’s net worth that $25 million represents.

(Via Tyler)