Sequoia Fund May Reopen to New Investors After Valeant Dive

  • `We've had a number of requests,' manager David Poppe says
  • Drugmaker lost 74% last quarter as rest of portfolio rose 4.5%

Sequoia Fund, which has faltered from its big bet on drugmaker Valeant Pharmaceuticals International Inc., is considering opening to new investors for the first time in more than two years.

“We’ve had a number of requests from investors who would like to get into the fund at these levels, so we are considering recommending to the board that Sequoia reopen in the proximate future,” manager David Poppe wrote in a letter to shareholders posted on the mutual fund’s website Tuesday.

Valeant was Sequoia’s largest holding at the start of the year and the drugmaker declined 74 percent in the first three months, said Poppe, chief executive officer at Ruane, Cunniff & Goldfarb, the investment firm that runs the fund. Valeant’s losses dragged down the fund while the rest of the holdings gained 4.5 percent, the manager wrote. The fund closed to most new investors in December 2013 after building a strong long-term record.

In March, Robert Goldfarb retired as Ruane Cunniff CEO and Sequoia co-manager in the wake of the fund’s poor performance and the firm’s defense of its Valeant stake as redemptions rose. Two of the fund’s outside directors had resigned in October.

The firm also told shareholders Tuesday that it formed an investment committee, which will include senior analysts who will have a “meaningful say” in analyzing and building the fund’s investments. When the firm announced Goldfarb’s exit last month, Poppe said that it would take a “more collaborative approach” in the future.

Valeant Research

Poppe and Jonathan Brandt, a stock analyst at the firm, have taken over research on Valeant, according to the letter. Brandt is one of three analysts who ask questions to billionaire investor Warren Buffett and Charles Munger at the annual meeting of their Berkshire Hathaway Inc.

Sequoia traces its roots to Buffett. It was co-founded in 1970 by Richard Cunniff and William Ruane, a friend of Buffett’s from the time the two studied together under legendary value investor Benjamin Graham at Columbia University in 1951. When Buffett shut down his partnership in 1969 to concentrate on Berkshire Hathaway, he recommended clients invest with Ruane.

The fund went on to return 14 percent a year from 1970 through the end of 2015, beating the 11 percent annualized gains of the Standard & Poor’s 500 Index. This year the $5.4 billion fund declined 9.9 percent through April 18, trailing almost all of its peers, according to data compiled by Bloomberg. The fund has suffered from its concentration in Valeant, which grew to 29 percent of Sequoia’s portfolio at the middle of last year as the stock soared. The drugmaker has plunged in value since August amid questions about its drug pricing practices, accounting and debt.

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