BOSTON (Reuters) - Herbalife's surging stock price may be causing hedge fund manager William Ackman some gastrointestinal pain now that he is sitting on $300 million worth of losses due to his bet that the nutrition and supplements' company's shares would fall, a person familiar with the fund said.
Shares of Herbalife are now trading up 30 percent from where Ackman first began betting that the stock would fall.
His $12 billion Pershing Square Capital Management last year put on a $1 billion short bet when the shares were trading around $50. When shorting a stock, a manager borrows the shares and expects to repay the loan at a lower price once the price has fallen.
Seven months ago, the hedge fund manager promised that he would not cover the roughly 20 million Herbalife shares that he shorted and that he would stick with the risky bet until the company's share price tumbled to zero.
But now that he has lost hundreds of millions of dollars as Herbalife's shares trend steadily higher, he and his investors may be feeling a bit more queasy.
Halfway through July, when stock markets rebounded, Pershing Square was up some 2.2 percent for the month, boasting about 8 percent for the year to date. But the monthly gain will likely have been flushed away by Herbalife and the annual gain will have shriveled some, people familiar with the portfolio said.
Herbalife's shares are trading at $63.82, up more than 5 percent Tuesday after having gotten a boost from second-quarter earnings numbers.
Ackman responded to Herbalife's second-quarter earnings report, which sent the stock price higher again, with a five- page press release. In it, he questions what he calls the company's weak operating earnings growth, the company's use of what he said is a beneficial exchange rate with Venezuela and the fact that the company's new accountant has not audited the latest earnings report.
The trouble with the Herbalife bet is that it comes squarely on the back of JC Penney, another stock in which Pershing Square has taken a beating. Ackman's high-profile bet on the retailer and praises of Ron Johnson, who was supposed to save the company but was fired earlier this year, had prompted some investors to want more information on that bet.
(Reporting By Svea Herbst-Bayliss; Editing by Maureen Bavdek)
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