Friday, May 15, 2020

Open letter to Institutional Investor Magazine

Last night Australian time Institutional Investor published a piece on Bronte Capital's position in Herbalife.

To quote the opening sentence:

Australian hedge fund manager John Hempton, the co-founder of Bronte Capital, has turned out to be a true believer in Herbalife, the controversial multilevel marketing company that has been under investigation by one federal agency or another for several years. Over the past year, Hempton doubled down on Herbalife...

I observed on twitter that contrary to standard journalism ethics the author (Michelle Celarier) did not seek our comment before publishing.

She told me to check my email. So I did. Ms Celarier did in fact send something.

Here it is:

Michelle Celarier
01:15 (12 hours ago)

Hi John 
I am writing a news story for Institutional Investor about your investment in Herbalife, as you disclosed updated filings for the quarter.   
I note that you've been adding to your position over the past year, according to the SEC. 
I also quote from your recent letter about Herbalife-- and note your performance this calendar year. 
Just wanted to let you know about this. I'm on deadline, so if you have further comment please respond asap. 
Thank you 

Michelle Celarier
917 971 0279 
Follow me on twitter @mcelarier
You will notice that this came at 1.15AM Australian time. It came when I was (and could reasonably be expected to be asleep). The story was published before I woke up at approximately 6AM.

This is a clear breach of journalist ethics. But it is also sloppy and demonstrates what happens when you do not check your facts.

There are two reasons our Herbalife position has increased.

a). Our fund was closed and it re-opened. We got considerable flows. We adjusted the Herbalife position to match the flows.

b). We sold a large position in the 50s (when Bill Ackman covered) and we repurchased it (and then some) at lower prices.

The second one is instructive. If you sell a $1000 worth of Herbalife stock at $53 and buy it back at $27 you will wind up with more Herbalife stock. (This trade matches some of what actually happened in our book.)

For these reasons our Herbalife stock position (measured in number of shares) has increased considerably.

But the position measured in the percentage of the fund at cost has actually shrunk. We did not "double-down" as the article suggests - we actually took some off the table.

The article is false and should be withdrawn.

The statement that we doubled-down is contrary to both our risk management policy and what actually happened.

That said: for the record we still think the stock is a good value at this price. We have a full-sized position now (or we would buy more). But that is not a newsworthy story. The only story Michelle Celarier has is that a fund manager is bullish about a stock they own.

John Hempton

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.