By Lucinda Shen
April 26, 2018

It’s been a rough year for hedge fund titan Bill Ackman, whose firm Pershing Square has suffered three straight years of losses partly due to bad, high-profile bets on Valeant and Herbalife. But now that Chipotle’s stock has jumped 24% on Tuesday thanks to increased revenue and investor confidence in the company’s new CEO—there is something for Pershing to be relieved about.

The rise in the Mexican fast-casual chains shares to $425 mean that Ackman’s near-10% stake in the company is no longer underwater. His holding has morphed from a losing bet into the troubled hedge fund’s best performer for 2018.

The welll-known activist investor first bought a stake for about $1.19 billion in Sept. 2016, according to Securities and Exchange Commission filings. The firm estimates it paid roughly $405 per Chipotle share. On Thursday, following Chipotle’s first quarter earnings that gave investors some optimism, his stake is now worth $1.23 billion, marking the first time it’s been in the green after a Norovirus outbreak in a Virginia restaurant in June.

Pershing’s initial purchase came after a string 2015 E. coli reports in Chipotle restaurant slammed shares from a high of $748—providing a buying opportunity for the hedge fund. But even after the purchase, doubts about Chipotle’s ability to bring in customers persisted, finally culminating when the Virginia location was hit with a Norovirus outbreak, just as the chain was beginning to recover from a similar food safety scare in 2015.

It remains to be seen whether Chipotle can continue to rally. Chipotle managed to beat Wall Street expectations during the quarter by boosting prices, though at the expense of fewer customers. CEO Brian Niccol, who started in early March, was also a soothing presence for investors. While he didn’t have much of a hand in the company’s first quarter, he has previously helped turn around another fast-casual Mexican chain: Taco Bell.

Pershing Square meanwhile also going through its own woes. Following losses between 2015 to 2017 due to bad bets on companies such as Valeant and Herbalife, investors have reportedly been redeeming their money. According to the Wall Street Journal, investors have asked for about two-thirds of the cash that could be withdrawn from fund last year, with redemptions continuing at about the same rate in 2018. Pershing Square says that it had $8.2 billion in assets under management at the end of March, far less than the $20.2 billion it had in mid-2015.

The firm has also reportedly reduced headcount by 10, and lowered its management fees.

Pershing Square has posted losses of about 8.6% through the end of March, with most holdings failing meaningfully beat the market.

While Chipotle, which is the fund’s fourth largest holding, accounting for 10% of the portfolio, is up 49% since the start of the year, ADP, Pershing’s largest holding, is up only 1%, while his second largest holding, Restaurant Brands International, is down about 11%. The firm’s third largest holding, Mondelez, is down about 7% since the start of 2018. The fifth largest holding, Platform Specialty Products, is largely flat. His final holding, Howard Hughes, is up 2.3% for the year.

For comparison, the S&P 500 is down about 0.3% in the same period.

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