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How Carl Icahn Posted a 7.9% Gain in 2018

The activist investor saw most of the gains from his short book.

So much for activism — at least for one quarter.

Carl Icahn’s private investment portfolio returned 4.3 percent in the fourth quarter, boosting its 2018 gain to 7.9 percent, according to regulatory filings made by Icahn’s publicly-traded holding companies, Icahn Enterprises and Icahn Enterprises Holdings. That's better than most long-short hedge funds.

The octogenarian investor, who is known for his activist deals, has his short book to thank for a change.

Icahn's short positions accounted for virtually all of the portfolio’s profits last year, posting a 7.8 percent gain. His long bets lost 0.8 percent for the year, while the portfolio’s “other” book gained 0.9 percent, according to the holding company’s annual report.

The shorts benefited amid the market’s fourth-quarter selloff, as underscored by performance earlier in the year. The portfolio was up 3.5 percent in the nine months through September, with the longs up 9.9 percent and the shorts down 7.2 percent.

Most of 2018’s gains from shorts came from broad market hedges tied to the S&P 500 index and to a lesser extent from short positions in individual stocks, mostly in the energy sector, according to the filing.

In 2016, Icahn’s short book lost more than 34 percent as the overall investment portfolio lost more than 20 percent.

Icahn Enterprises’ investment segment is one of eight subsidiaries owned by the diversified holding company.

The company invests its proprietary capital through the private investment funds. At year-end IEP had $5.1 billion in investments in the funds, including $1.7 billion invested in 2018. Carl Icahn and his affiliates had an additional $5 billion invested in the funds. 

The investment segment’s losses in 2018 were driven by two consumer, cyclical sector investments, a basic material sector investment, two consumer, non-cyclical sector investments, a technology sector investment and an industrial sector investment, according to the report.

At year-end, the largest longs in the investment segment were Herbalife, Cheniere Energy, Newell Brands, Dell Technologies Inc. Class C, Diamondback Energy, Xerox Corp., Navistar International Corp., Hertz Global Holdings, and Conduent (CNDT), according to the annual report. 

Meanwhile, in a separate regulatory filing, Icahn disclosed that on March 4 he sold 5 million shares of Hertz Global Holdings for $19.45 each, cutting his stake to slightly below 29 percent. The sales spooked investors. Shares of Hertz fell about 10 percent the next day and slipped a further 4 percent Wednesday to close at $17.29. Shares of the car rental giant fell about 38 percent last year.

Icahn saw big gains from several stocks last year, including Herbalife, the controversial multi-level marketer of health and nutrition products, and liquified natural gas producer Cheniere Energy.

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