Hedge fund Pershing Square Capital Management told investors this week that it recently sold its position in Citigroup and used that money to buy shares of Procter & Gamble.
Bill Ackman, who runs the roughly $10 billion New York hedge fund, wrote in his quarterly letter to investors that he decided to pull the "rip cord" after "one bad night's sleep thinking about Citi."
Ackman said he feels that Citi, which the fund started eyeing more than two years ago, is still inexpensive and well-managed and destined to rise in value over time. But for Pershing Square and its investors, Ackman concluded, there are "much easier" ways to make money.
The hedge fund chief, instrumental in shaking up management at Canadian Pacific Railway and retailer J.C. Penney, has been buying shares in P&G for the last few weeks and may want to increase his stake further.
Ackman revealed at CNBC's Delivering Alpha conference on Wednesday that his fund owns $1.8 billion of the company's shares and some options.
Ackman's involvement comes several weeks after the maker of Tide detergent and Pampers diapers lowered expectations for profits and sales as it navigates tough economic conditions, with Chief Executive Bob McDonald acknowledging that missteps have been made.
His investors benefit, Ackman said, from his liquidating the Citi positions because there will be less systemic risk to the portfolio. For himself, there would be fewer sleepless nights.
Ackman said he had never really been a fan of making big, long-term bets on financial institutions and that most of the profits that he has made in this sector happened when he was betting against, or shorting, these types of companies. Ackman prominently shorted mortgage insurer MBIA.
At Citi, the bank's strong management, conservatively marked balance sheet after the credit crisis of 2008-09, the promising environment for making new loans and the stock's low cost all proved attractive to Pershing Square Capital Management.
But a more difficult environment in the face of Europe's credit crisis prompted another reassessment. And when more general problems like the derivative losses at JPMorgan Chase & Co. and the Libor interest rate fixing scandal emerged, they proved to be the "proverbial straw that broke this camel's back," Ackman wrote in his letter.
Fund managers generally do not make their holdings public until some 45 days after the end of the quarter when they release their so-called 13-F filings with securities regulators.
Ackman also acknowledged that his investment in J.C. Penney is currently weighing on the portfolio. The drop in the retailer's stock price to below $20 from its high of $43 in February has cost the fund more than 9 percentage points in gross returns this year, he said.
For the first six months of 2012, Pershing Square gained 2.3 percent, but during the second quarter the fund lost 6.4 percent.
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