CHARLESTON, W.Va. -- As hedge funds go, billionaire Bill Ackman's Pershing Square Capital has made financial news headlines of late.
The fund is making two billion-dollar bets: that troubled retailer J.C. Penney will not only turn things around, but will thrive; and that Herbalife, the distributor of nutrition and skin care products, will collapse.
Which has put the hedge fund under pressure, since neither assumption is playing out.
Pershing Square has shorted $1 billion of Herbalife stock, under Ackman's assertion that the business model, which relies on local salespersons and distributors, is a "sophisticated pyramid scheme," and will either collapse or be subject to intervention by the Federal Trade Commission.
The hedge fund also bought a big chunk of JCP stock, giving Ackman leverage to replace the retail chain's CEO.
The problem for Ackman is that JCP continues to struggle, with its stock price down more than 25 percent for the year, and Herbalife is thriving, with stock prices up 15 percent year to date.
Which would be of minimal interest for West Virginia, except for one thing:
According to its March quarterly report, the state Investment Management Board owns 30,000 shares of Pershing Square, valued at $38.4 million.
According to the investment objective, the holdings in Pershing Square are "to invest in long and short investment opportunities that exhibit significant valuation discrepancies between current trading prices and intrinsic business value."
According to the report, IMB is locked into the investment until September, and then can begin quarterly redemptions, with 65 days' prior written notice.
IMB Executive Director Craig Slaughter said he's aware of the issues with Pershing Square.
"It's still in play," he said. "I'm really not going to offer an opinion on whether it's a good or bad strategy."
He noted that by definition, hedge funds are more aggressive, and therefore more risky investments.
Despite the stumbles, Pershing Square is still earning a net return of about 6 percent, so it's not losing money at the moment, even though it's underperforming in the stock market.
Even in a worst-case scenario, to put the state's holdings in Pershing Square in perspective, the IMB manages more than $13 billion of investments, primarily for state-run pension funds, with more than $1.2 billion alone invested in various hedge funds.