Ruane Cunniff Sold 4 Million Valeant Shares in First Quarter

  • Drugmaker's slumping stock dragging down Sequoia's returns
  • Some of those leaving fund are paid in a mix of cash, stocks

Ruane, Cunniff & Goldfarb, the largest shareholder in Valeant Pharmaceuticals International Inc., sold about 4 million shares, or 11 percent, of its stake in the slumping drugmaker in the first quarter, according to a regulatory filing Friday.

Ruane Cunniff, which runs the $5.5 billion Sequoia Fund, trimmed its position to 31.4 million shares as of March 31 from 35.4 million as of Dec. 31. The fund sold about 1.5 million Valeant shares in March, a person familiar with the transaction said at the time.

Valeant, under fire for its accounting and pricing practices, is down 67 percent this year, adding to its 2015 losses. The mutual fund, which had 19 percent of its assets in Valeant as of the end of the year, and more than 30 percent at one time, is down 11 percent in 2016, trailing more than 99 percent of competitors.

The losses at Sequoia have triggered more than $500 million in redemptions from the fund this year, data from Morningstar Inc. show. Some large fund shareholders pulling money from Sequoia have been paid with a mixture of cash and stock holdings from the fund, a practice known as “redemption in kind,” the Wall Street Journal reported Friday.

Redemption Process

Sequoia’s prospectus says that “it is highly likely that the fund will pay you in securities or partly in securities if you make a redemption (or series of redemptions) in an amount greater than $250,000.”

“Our strategy on redemptions has been the same for decades, and is unrelated to Valeant,” David Poppe, Sequoia’s manager and chief executive officer of Ruane Cunniff, said Friday in a telephone interview.

By giving redeeming shareholders stock instead of cash, Sequoia minimizes capital gains that must be paid by investors who stick with the fund. Many of Sequoia’s holdings, including Berkshire Hathaway Inc., have been in the fund for decades and have large unrealized capital gains.

Robert Goldfarb, the former CEO at Ruane and co-manager of Sequoia who had championed the Valeant investment, retired last month. Rory Priday, the Ruane analyst who followed Valeant, also left the firm.

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