Scott Ferguson’s Sachem Head Loses a Partner

February 24, 2017   Stephen Taub

Ernesto Cruz is leaving the activist firm to take a job at Singapore’s sovereign wealth fund.

One of Sachem Head Capital Management’s partners is leaving the firm.

The activist hedge fund firm founded by Bill Ackman protégé Scott Ferguson told clients in a recent letter that Ernesto Cruz will become a portfolio manager for GIC Private Ltd., the sovereign wealth fund for Singapore. According to people who have seen the letter, Ferguson was very supportive of the move, telling clients it is a good opportunity for Cruz to do his own thing. The firm declined to comment.

Cruz joined Sachem Head in January 2013 and has served as a partner and analyst.

Before that, the Harvard graduate spent a year as an analyst at JAT Capital and more than five years as an analyst at Highline Capital Management.

Cruz’s departure comes after Sachem Head suffered its worst year since Ferguson founded the firm in November 2012. The firm also heavily shook up its portfolio in the fourth quarter.

Ferguson was the first analyst at Pershing Square Capital Management, which he joined in September 2003, and became a partner after nine years with the New York firm.

He left in 2012 to launch Sachem Head and began accepting outside money in July 2013.

In 2014, Ferguson’s first full year managing outside money, Sachem Head gained 22.5 percent and returned another 14.3 percent in 2015. Last year, however, it fell 80 basis points, or less than 1 percent.

This year, Sachem Head’s main fund has already gotten off to a strong start, climbing 4.6 percent in January, and is said to be up in February. Today, the firm manages more than $4.5 billion.

Like most activist firms, Sachem Head runs a highly concentrated book. At year-end it had $2.6 billion in U.S. equity assets spread over just 13 issues.

By far its largest position is in Autodesk, the maker of 3-D design software, accounting for more than 36 percent of the equity portfolio. The stock has gained more than 17 percent this year after returning about 7.7 percent last year.

Sachem Head is the third-largest shareholder. In March 2016, Autodesk named three new directors to its board under a settlement reached with Sachem Head and Eminence Capital. One of the three directors is Ferguson, who also became a member of the board’s compensation and human resources committee.

Otherwise, nine of the firm’s 13 stocks are new positions established in the fourth quarter. For example, Sachem Head took a large stake in SBA Communications, instantly making it the firm’s second-largest position overall, accounting for more than 7 percent of its U.S. equity assets. Shares of the wireless infrastructure giant are already up 8 percent for the year.

Biotech specialist Celgene, the second-largest of Sachem Head’s new positions, is up nearly 3 percent.

Meanwhile, longer term holding Charter Communications — now Sachem head’s third largest long — is up nearly 14 percent for the year.

Sachem Head also unloaded six positions in the fourth quarter, including FleetCor Technologies, its fourth-largest long in the third quarter, and Allergan, its sixth-largest position at the time.

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