By the end of 2017, two golden boys of the golden age of hedge funds seemed to have lost their mojo. David Einhorn and Bill Ackman, who had become billionaire investors and Wall Street celebrities in the asset management boom of the early aughts, were posting severely disappointing returns and hemorrhaging cash.
Fast forward to today and both are basking in the afterglow of monster years in 2022 and 2023, reestablishing themselves at the front of a thinning hedge fund herd. Both created massive returns for investors last year by handily beating the S&P 500, something many of their peers failed to do. In fact, some didn’t even come coming close.
But their paths back to the top couldn’t be more different. In fact, the public personas of Ackman and Einhorn, once closely aligned, are now polar-opposite versions of the modern-day hedge fund manager.
The Golden Age
A decade or two ago, a coterie of big personalities loomed large over the industry. Swaggering asset managers like Steve Cohen, Daniel Och, Whitney Tilson, David Tepper, Dan Loeb, Ackman and Einhorn were investing billions, taking big activist positions and often talking even bigger in print or on live TV.
The golden age of hedge funds pushed fund managers from niche Wall Street fame into the mainstream, making the general public want to learn more about them, spawning movies like “The Big Short” and TV shows like Showtime’s “Billions.”
But in the last few years, most of these bold-face names and a few others have put their attentions elsewhere, closed up shop — or perhaps wished they had.
All of them have overcome major setbacks either professional or personal . Some have stared down SEC investigations, while others have suffered through bitter divorces. Or both.
Some have started their next acts by purchasing pro sports teams: Tepper bought the NFL’s Carolina Panthers and turned his fund Appaloosa Management into a family office; Cohen bought MLB’s New York Mets but kept his fund Point72 just the way it was.
Some have stepped away almost entirely: Tilson gave up life as a hedge fund manager in 2017; Och left a sea of controversy behind him when he stepped away from his fund, Och-Ziff Capital; and almost all of them have dipped a toe, or more, into private equity.
Of all the early hedgie billionaires, Einhorn and Ackman seemed the most alike. They are roughly the same age — Einhorn is 55, Ackman is 57 — both are prodigious stock pickers. One widely circulated rumor from 2010 contended that Einhorn turned down an offer from famed value investor Warren Buffett to pick stocks for Berkshire Hathaway.
“They were compared to each other a lot back then,” said one hedge fund marketing executive. “There was a period of time where you couldn’t avoid hearing their names on a daily basis, which was probably how they liked it.”
Both have proven that they thoroughly enjoy a short-selling campaign against a company they think is overvalued or an outright fraud.
Ackman and Einhorn also had a friendly relationship for more than a decade. In 2010, they appeared together on CNBC in what looked like a public meeting of a private mutual admiration society. Ackman said the two met at a lunch around 1998, struck up a conversation on the subway platform afterwards and the friendship stuck.
Einhorn praised Ackman as “a phenomenal investor,” while Ackman joked that Einhorn was his “marketing advisor.” But according to widely accepted gossip in hedge fund circles, that friendship met an abrupt end when Ackman seemingly took a shot at Einhorn’s attempt to take a minority stake in the Mets in 2011 by telling The New York Times that Einhorn had previously attempted to buy the Milwaukee Brewers and failed.
The Short Worm Turns
By 2014, the two frenemies were both billionaires. That year, Einhorn’s Greenlight Capital fund would return 9% to investors, while Ackman’s Pershing Square Capital would book an almost mind-boggling 40% return.
But in the world of investing, things can change fast.
Ackman began a short campaign against nutritional supplement company Herbalife in 2012, betting that the stock would go to zero after he was proved right in his analysis that the entire enterprise was a multi-platform marketing scam. Initially, the move looked borderline prophetic as news of Ackman’s short pushed the stock price down from just over $20 a share in December 2012 to roughly $12 a few days later.
But Ackman’s joy did not last long. On January 24, 2013, Ackman went live on CNBC air and proceeded to argue with fellow billionaire activist investor — and famed grudge-holder — Carl Icahn. The two men squabbled mostly about their personalities and how each thought the other’s was bad, but they also disagreed on Ackman’s bet against Herbalife.
A month later, Icahn revealed that he had built a large stake in Herbalife, a public statement of his intent to blow up Ackman’s short bet. As Ackman continued to insist that Herbalife was worth nothing, the stock shot up more than 100% in 2013 — putting a tight squeeze on Ackman’s position.
While Herbalife would retest the 2012 lows in 2015 as news began to circulate that the company would cut a deal with the Federal Trade Commission and pay $200 million to settle charges that it deceived consumers, Ackman’s short bet would never recover. In early 2019, Herbalife stock hit $60 a share and Ackman announced he had exited his position at an estimated loss of more than $1 billion.
In the midst of the Herbalife short in 2017, Pershing Square lost 4%, capping its third straight year of negative returns. Pershing went into a tailspin that forced Ackman into a reorganization and public self-reflection. As the year came to an end, it was widely reported that he was getting a divorce.
“Bill looked like toast in 2017,” recalled a macro fund manager. “Herbalife was a huge mistake and he took forever to get out of it, so clients pulled their money. That’s how it works.”
Things were not rosy for Einhorn either. He also went through a divorce in 2017 and had taken a short position on Tesla that could charitably be described as nearly disastrous.
As a value investor, Einhorn reckoned that the electric carmaker’s consistent inability to deliver the number of cars promised almost every quarter made its stock wildly overvalued at close to $20 a share. But he underestimated the faith Tesla investors have in CEO Elon Musk and the stock soared.
Greenlight, which had grown its assets under management to more than $12 billion by 2015, saw its AUM cut in half by 2019. In the third quarter of 2020, Tesla’s share price was trading at over $130, and Greenlight’s AUM fell under $3 billion as clients fled while Telsa surged.
A little more than a year later, Tesla stock was just over $400 a share.
“He got trounced on Tesla,” recalled a fund-of-funds manager familiar with Greenlight’s performance. “But a lot of those guys got into shorts so deep that their egos almost killed them.”
Instead of retrenching, however, Einhorn and Ackman have dramatically bounced back.
After Herbalife, Ackman went back to his value investing roots, taking big value positions in stocks like Starbucks and Chipotle and eventually hedging the outbreak of COVID-19 in a series of trades in March 2020 that made him $2.6 billion.
Ackman also embraced the notoriety that came with his resurgence. In addition to an infamous TV appearance that presaged his COVID hedge in early 2020 (he predicted “Hell is coming”), Ackman has used social media and his relatively frequent television appearances to recreate himself as something of a pundit on geopolitical affairs.
He has openly urged JPMorgan Chase CEO Jamie Dimon to run for president, flirted with the presidential candidacy of Robert F. Kennedy Jr. and his anti-vaccination opinions and made it clear that he will not back President Joe Biden or Donald Trump in 2024. After spending a few months essentially live-tweeting the Russian invasion of Ukraine, and then literally investing in Ukraine’s defense, Ackman became ubiquitous on social media following the Oct. 7 attack on Israel by Hamas and the resulting conflict.
Ackman was a vocal leader in the successful campaign to remove Claudine Gay as president of Harvard, his alma mater, after a maelstrom of controversy over her handling of the school’s response to the Hamas-Israel war. The push against Gay seems to have pulled Ackman to the forefront of opposition to the diversity, equity, and inclusion movement.
What impressed some in the hedge fund industry was how Ackman managed to generate some massive returns even while appearing to spend an inordinate amount of time on seemingly everything else in the last two months of 2023. At the end of October, Pershing Square was up just over 11% for the first 10 months, but closed up 27% for the year thanks to bets on blue-chip stocks like Google and some cagey playing of the bond market.
“His investors could probably be forgiven for worrying that he was distracted by the Harvard and Israel stuff, especially with how public he was,” mused the fund-of-funds manager. “But who needs to forgive who when you’re up almost 30?”
Ackman continues to stir up drama on social media. He has launched a battle royale with Business Insider over a Jan. 4 article that reported that his second wife, Neri Oxman, plagiarized parts of her thesis at Massachusetts Institute of Technology. Pershing has kicked off the year slow, down almost 2% in the first week of 2024.
Einhorn’s Stealth Bomber
Einhorn’s comeback, by comparison, has been almost silent. Instead of chasing clout or controversy on social media, he has been flying under the radar with an old, yet simple approach — investing in companies he thinks are undervalued.
“Value investing, as an industry, is unlikely to ever fully recover,” Einhorn wrote to his investors in a January 2023 letter disclosing that Greenlight was up 36.6% in 2022. “Prospectively, we believe this is a positive for our strategy as we face much less competition than we did a few years ago.”
Greenlight sailed on with that thesis, using bets on healthcare and energy — defensive stocks that typically do well when the rest of the market isn’t. Einhorn’s strategy assumed that the Federal Reserve wouldn’t rush to cut interest rates. At the end of last October, Einhorn was up 27.7% and it looked like Greenlight would surge well past 30% on the year, but the Fed started sounding more and more dovish, pushing the equity market up higher and higher, halting Einhorn’s rise.
While Greenlight’s December performance remains unclear, the fund reportedly gave back 2.2% in November despite the S&P 500 surging 9% for the month. The index gained just over 4% in the last month of 2023, meaning Einhorn’s bearish stance likely cost him much less.
“If he hadn’t gotten cautiously bearish, which I fully understand by the way, he could be looking at 35% or more,” mused the fund of funds manager. “But he’s still beating the market, and a lot of guys somehow aren’t.”
Einhorn’s only competition this year might be Ackman and the S&P 500, which was up more than 24%. Overall, hedge funds in 2023 had returned 5.7% on average through November.
As Einhorn told investors in January, “we are probably not as smart as we appeared in 2022, but we are probably not as dumb as we appeared in 2018 either.”
And with 2024 shaping up to be another year of potential chaos in both markets and geopolitics, Einhorn seems to be indicating that he will not be tweeting about Ivy League presidents or predicting outcomes but instead will use events to look for value.
“The complacent investor view that geopolitics should be ignored might be true. Except for the times when it isn’t,” he wrote to investors in November. “We suspect we are in one of those times.”
How other investors see Einhorn and Ackman these days is less clear, but there are some signals that quiet is more attractive than loud.
“Listen, they’re both very good investors,” said the hedge fund marketing executive. “But all things considered right now, if I had to choose one, I’d go with Einhorn. There’s too much noise around Bill right now and I don’t see how it doesn’t turn into a distraction at some point.”