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The Morning Brief: Bill Ackman Bets Big on Chipotle

Bill Ackman has made a big new bet. The hedge fund manager’s Pershing Square Capital Management disclosed it owns nearly 2.9 million shares of Chipotle Mexican Grill, or 9.9 percent of the casual dining chain. In a regulatory filing the New York-based firm says Chipotle’s stock is undervalued, stressing the company “has a strong brand, differentiated offering, enormous growth opportunity, and visionary leadership.”

Pershing Square also put the company on notice, warning it plans to hold discussions with management and the board of directors, other investors and other potential interested parties related to governance and board composition, business, operations, cost structure, management, assets, capitalization, financial condition, strategic plans, and the company’s overall future. Pershing also says it may engage in some sort of proxy “solicitation,” without being specific.

Chipotle was once a very hot company, known for its long lines of customers stretching out the door. However, a viral outbreak in many of its restaurants drove away its loyal customer base as well as shareholders. The stock has nearly halved in the past 13 months, although it was up more than 6 percent in after-hours trading. Ironically, another activist, New York-based Greenlight Capital earlier lost a sizable amount on Chipotle’s stock when it famously shorted the shares as the company's stock was rapidly rising. Pershing Square’s Chipotle investment is the latest example of an activist not foreshadowing its move by buying shares before it was required to make a public filing. Pershing Square has built its entire stake since July. Chipotle is also the latest restaurant or retailer that has attracted the attention of a billionaire investor who most likely never or rarely has stepped foot into one of its locations. Stay tuned with this one.
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Tuesday was a big day for Chinese Internet stocks, many of which rose between 3 percent and 5 percent. However, few have strong hedge fund followings these days, a big change from just a few quarters ago.

Shares of hedge fund favorite JD.com surged nearly 4 percent, to close at $26.53. The stock is up 25 percent this quarter alone. At the end of the second quarter, at least eight hedge fund firms with ties to Julian Robertson Jr.’s Tiger Management owned shares of JD.com, sometimes called the Chinese Amazon.com, including three that rank among the top-seven shareholders. They are New York-based Tiger Global Management; Greenwich, Connecticut-based Viking Global Investors; and New York-based Coatue Management. However, several years ago JD.com enjoyed a much wider hedge fund following.

Shares of Alibaba Group Holding surged 4.6 percent on Tuesday. However, few hedge funds benefitted, as one is hard pressed to find a hedge fund among the company’s major shareholders. This is a far cry from when the stock was one of the must-own issues when the e-commerce giant went public in September 2014. At the end of the third quarter of 2014, at least 106 hedge funds held a position in the stock.

Another Chinese Internet stock that jumped in price Tuesday was Tencent Holdings, which surged more than 5 percent. However, hedge funds are not big investors in this stock, either. Oh well.

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Glenview Capital Management boosted its stake in Computer Sciences Corporation to nearly 7.4 million shares, or 5.26 percent of the information technology services company. The New York hedge fund firm was already the third-largest shareholder at the end of the second quarter, when it owned nearly 6.9 million shares. The investment is passive, according to a regulatory filing. At the end of June, New York-based JANA Partners was the company’s tenth-largest shareholder, while Dallas-based Maverick Capital was the eleventh-largest holder.

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Pacific Alternative Asset Management Company (PAAMCO) named Basil Williams a managing director. Over the next year he will become head of portfolio management, succeeding David Weinberger, who plans to retire in mid-2017. Williams was most recently co-CIO of Mariner Investment Group. PAAMCO, a fund of hedge funds firm, manages $10 billion in discretionary assets and advises on another $12 billion in assets.

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