Hedge Fund Is Said to Gain 119% Succeeding Where Ackman Failed

(Bloomberg) -- A bullish bet on Valeant Pharmaceuticals International Inc., the drugmaker that spurred losses for Bill Ackman’s investment firm, helped a San Francisco-based hedge fund to a 119 percent gain last year, according to a person familiar with the matter.

ChinaRock Capital Management bet that quality assets, good cash flow and a management incentive plan would help Valeant rebound after an 86 percent plunge in 2016 priced the company below its liquidation value, said the person, who asked not to be identified because the information is private.

ChinaRock’s CRCM Institutional Fund sold out of Valeant after shares rallied, said the person, who didn’t disclose when it disposed off the stake.

Valeant shares more than doubled from a low point in April through the end of last year, a surge that helped power a 2017 return for the ChinaRock fund that was nearly 14-fold the global hedge fund average. The fund gained an estimated 9.4 percent in January, said the person, adding that it gained 16 percent in 2016 and 21 percent in 2015.

Led by former Farallon Capital Management fund manager Ding Chun, ChinaRock is benefiting from a move last year to broaden its strategy to include U.S. companies after starting as a China-focused multi-strategy fund. ChinaRock manages more than $1 billion in hedge fund and venture capital funds, with the majority of the hedge fund assets coming from Ding and ChinaRock employees, said the person.

Hedge Fund Is Said to Gain 119% Succeeding Where Ackman Failed

Alexandra Lin, who’s responsible for business development for ChinaRock’s public equities business, declined to comment.

Ackman sold out of Valeant in March last year, losing $4 billion and apologizing for a “huge mistake,” after the firm was battered by probes into its business practices and accounting, and outrage over its alleged price gouging. The stock went on to surge 144 percent by year-end from a nine-year low as asset sales and the addition of billionaire hedge fund manager John Paulson to the board helped to revive investor confidence.

The ChinaRock fund steered clear of the FAANG technology stocks -- Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Alphabet Inc. -- which helped propel market gains last year, the person said. Another profitable investment last year was Fanhua Inc., the Chinese insurance broker whose shares jumped 161 percent in U.S. trading.

Hedge Fund Is Said to Gain 119% Succeeding Where Ackman Failed

Apart from U.S. companies, the fund also broadened its investment focus last year to include small- and medium-sized companies in Asia. It has shifted to more concentrated holdings involving as many as 15 core positions, leaning towards bullish wagers while using little or no borrowings to boost returns.  

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