How Bill Ackman Won January

For many money managers, 2014 got off to a difficult start. With emerging markets getting slammed and general turbulence in global financial markets, like the strengthening yen in Japan, January appears to have been tough on hedge funds managers, who are richly paid to deliver strong returns in good markets and bad.

In January, the average hedge fund lost money, but William Ackman, the billionaire hedge fund manager, had a great month. His main Pershing Square hedge fund returned 3.8% in January. Ackman trounced the U.S. stock market in January, which fell 3.6% as measured by the Standard & Poor’s 500 stock index.

Ackman weathered the January storm. First off, Pershing Square’s large position in Beam paid off in a big way when Japan’s Suntory agreed to buy the maker of Jim Beam in a $13.6 billion deal. The Beam success was a direct product of Ackman’s style of activist investing given that the hedge fund manager helped create the company by working to break up Fortune Brands, which became Beam after it sold off some assets.

Second, Ackman’s relentless attack on Herbalife finally produced some gains for Pershing Square in January. Shares of Herbalife fell by more than 18% in January after a U.S. senator asked federal regulators to investigate the business practices of the diet shake seller that Ackman has been shorting and calling a pyramid scheme for over a year. Reports suggesting that Chinese and Canadian regulators have taken something of an interest in Herbalife also seemed to spook Herbalife investors.

Ackman’s hedge fund returns were undermined in 2013 by Herbalife’s soaring stock price last year and the fiasco at JC Penney , the struggling retailer that Ackman had tried to help reinvent. 2013 was the third straight year that Ackman’s stock hedge fund underperformed the S&P 500. Pershing Square’s main hedge fund returned less than 10% in 2013 while the S&P 500 index returned more than 30%.

Still, Ackman made a shrewd move in the summer that helped him avoid complete disaster in 2013 and set him up for a good January. He managed to get out of JC Penney in a big block trade for $12.91 a share. That booked a loss of hundreds of millions of dollars for Ackman, but the move now looks increasingly important for him. Shares of JC Penney closed at $5.08 on Tuesday.