On Tuesday, hedge fund investor and Pershing Square Holdings Ltd PSHZF CEO Bill Ackman told investors he will no longer be participating in activist short selling campaigns.
What Happened? In his annual letter to Pershing Square investors, Ackman said he is retiring from activist short selling following a failed bet against multi-level marketing company Herbalife Nutrition Ltd HLF, a position which he exited in 2018.
Why It's Important: In the letter, Ackman said Pershing has had mixed results with its past short selling campaigns, and they have successfully generated significant media exposure for the company.
“Fortunately for all of us, and as importantly for our reputation as a supportive constructive owner, we have permanently retired from this line of work," Ackman said.
For years, Ackman accused Herbalife of being a predatory pyramid scheme, and he didn't necessarily change his opinion of the company when he closed out his short position.
"We exited because we believed that the capital could better be deployed in other opportunities, particularly when one considered the opportunity cost of our time,” Ackman wrote.
Pershing Square executed extremely profitable short trades on Federal National Mortgage Association FNMA and Federal Home Loan Mortgage Corp FMCC in 2007 prior to the U.S. mortgage crisis.
Ackman is not the only high-profile former short seller who is stepping back from bearish bets for the time being. Citron Research's Andrew Left abandoned his firm's 20-year stretch as one of Wall Street's most prominent short sellers in early 2021 after Left and his family were allegedly threatened and harassed by supporters of meme stock GameStop Corp. GME.
Benzinga's Take: If short selling disappears or is drastically reduced over fears related to the social media-fueled targeted buying campaigns in meme stocks the market has experienced in recent years, it will be a double-edged sword for investors.
They may no longer have to deal with institutional investors suffocating struggling companies with constant short selling. Instead, the market may see a growing number of market bubbles, corporate frauds and scams that would have otherwise been exposed by short sellers like Ackman and Left.
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