VRX - Valeant Pharmaceuticals International Inc.

[LC]

This is interesting but I would be careful.  I spoke with the former top executive of Bausch and Lamb (before the LBO) and described to him the Valeant strategy and he was skeptical that it could work in the vision/eye care business.  He knows B&L's business very well and thinks the R&D "light" approach of Valeant will result in significantly lower cash flows over the LT in part due to competition.  I don't have a horse in this race but if the stock is not cheap and there is a risk that there traditional strategy will not work for B&L, I would be careful here.

 

Packer

 

Thank you Packer,

it seems a bit strange that Mr. Pearson, who is so focused on a R&D “light” business approach, had invested so much to buy a company which instead requires high R&D expenses to keep generating cash… ???

Anyway, this is certainly an issue to watch closely!

 

Gio

Gio,

 

Isn't the basics of the model that Valeant is buying up drugs which have already spent large amounts of R&D to develop the drug successfully? And avoiding the problem of spending R&D to develop a drug which does not become commercialized. Therefore it's more of a finance vehicle than a drug manufacturer. This is my understanding, please correct me if I'm mistaken.

[Phoenix01]

Gio,

 

You have a strong opinion about VRX.  Since we seem to have differing opinions, I was hoping that you might shed some light on the reasons.

 

The cash EPS is basically the earnings without depreciation.  Depreciation is a real cost, even it does not consume cash today.  It looks like they are bringing forward the cashflow at the detriment of long term performance.  That only works for a the short term and the stock price is based on a very bright long term future.  There seems to be a disconnect.

 

 

[giofranchi]

Gio,

 

Isn't the basics of the model that Valeant is buying up drugs which have already spent large amounts of R&D to develop the drug successfully? And avoiding the problem of spending R&D to develop a drug which does not become commercialized. Therefore it's more of a finance vehicle than a drug manufacturer. This is my understanding, please correct me if I'm mistaken.

 

Well, I think it is the combination of the two: remember that Mr. Pearson has stated many times they try to buy "durable" assets. Therefore, they are aiming at benefiting from the cash flow generated by those assets throughout their "durable" life, without paying the costs of developing them… That’s not entirely true… Of course they pay for them! What they strive to eliminate from the equation is the uncertainty tied to the development of drugs… because they buy them once they have already been developed by others. But later, when they possess those assets, they act exactly like any other pharma company acts: they produce, advertise, and sell their products.

 

Gio

 

[Guest wellmont]

Gio,

 

You have a strong opinion about VRX.  Since we seem to have differing opinions, I was hoping that you might shed some light on the reasons.

 

The cash EPS is basically the earnings without depreciation.  Depreciation is a real cost, even it does not consume cash today.  It looks like they are bringing forward the cashflow at the detriment of long term performance.  That only works for a the short term and the stock price is based on a very bright long term future.  There seems to be a disconnect.

 

wrong. cash EPS is Not earnings without depreciation. it's earnings without amortization. big difference. I suggest you learn the difference before declaring that this company is all about "smoke and mirrors".

[giofranchi]

Gio,

 

You have a strong opinion about VRX.  Since we seem to have differing opinions, I was hoping that you might shed some light on the reasons.

 

The cash EPS is basically the earnings without depreciation.  Depreciation is a real cost, even it does not consume cash today.  It looks like they are bringing forward the cashflow at the detriment of long term performance.  That only works for a the short term and the stock price is based on a very bright long term future.  There seems to be a disconnect.

 

wrong. cash EPS is Not earnings without depreciation. it's earnings without amortization. big difference. I suggest you learn the difference before declaring that this company is all about "smoke and mirrors".

 

Hey! We all have different opinions… No need to get upset or be rude, right? ;)

This being said, I agree with wellmont: please, take a look at the ENDP’s strategic presentation in attachment. On its last page you find the adjustments to get to Cash EPS starting from GAAP EPS. Evidently, amortization of intangible assets and restructuring costs are what matters the most. And we all know amortization of intangible assets is neither a true cash outflow nor a true cost (unless you have overpaid for those assets), and restructuring costs are something temporary that will be gone when the integration of a new business is finally over.

That’s why I believe that Cash EPS are the true measure of profitability for both VRX and ENDP.

 

Gio

Endo_Health_Solutions_June_2013_Strategy_Call_Presentation.pdf

[LC]

Here's my thought of the mechanics of this business:

 

A biotech company raises money, develops a drug, goes through the trials, is ready for commercial introduction. Let's say the costs up to this point are $100. Valeant comes in, pays some multiple of $100, and then produces & sells the drug commercially and reap the cash flows.

 

Then Valeant uses those cash flows to make further acquisitions and keep the cash flows coming, as the initial stream will weaken over time.

 

In terms of the accounting, take a look at the B&L deal. As a result, Valeant recognized 4.31b of intangible assets (which will be amortized) and 4.38b of goodwill (which will not be amortized). Should the amortization of those intangible assets be added back to earnings over time? That is a decision that you have to make about the durability of B&L's cash flows.

 

So IMHO this is a dealmaking company. Yes they produce & sell the drug, but I don't believe they have some structural advantage in this respect. I've seen no evidence of a superior production/selling method (correct me if I'm wrong!).

 

Where I do see the advantage is their ability to make good deals, in Mr. Pearson and his team. This is what I believe attracts their investors. I however don't know if he'll be still making good deals over the next 5 or 10 years because I haven't studied the man enough, these are my 2 cents.

[Guest wellmont]

disagree. he makes good deals and then operates the acquired assets to produce free cash flow and high returns on capital. he creates value. If the deal pipeline slows down he will Change course. He will find another way to create value. Because he's not locked into any one strategy. He proved that by buying B&L, which was not the kind of company he had been targeting. He's flexible. if his stock ever trades below intrinsic value he would buy it back. He's a value creator. He's a businessman. He runs the companies like an owner would. Big pharma has been run by caretakers who have bloated organizations and just go through the motions.

 

[giofranchi]

Here's my thought of the mechanics of this business:

 

A biotech company raises money, develops a drug, goes through the trials, is ready for commercial introduction. Let's say the costs up to this point are $100. Valeant comes in, pays some multiple of $100, and then produces & sells the drug commercially and reap the cash flows.

 

Then Valeant uses those cash flows to make further acquisitions and keep the cash flows coming, as the initial stream will weaken over time.

 

In terms of the accounting, take a look at the B&L deal. As a result, Valeant recognized 4.31b of intangible assets (which will be amortized) and 4.38b of goodwill (which will not be amortized). Should the amortization of those intangible assets be added back to earnings over time? That is a decision that you have to make about the durability of B&L's cash flows.

 

So IMHO this is a dealmaking company. Yes they produce & sell the drug, but I don't believe they have some structural advantage in this respect. I've seen no evidence of a superior production/selling method (correct me if I'm wrong!).

 

Where I do see the advantage is their ability to make good deals, in Mr. Pearson and his team. This is what I believe attracts their investors. I however don't know if he'll be still making good deals over the next 5 or 10 years because I haven't studied the man enough, these are my 2 cents.

 

LC,

I think you are right. But I would also acknowledge that the pharma business is a wonderful business! And its only Achilles’ heel is the uncertainty around the development of new drugs and the wasted capital that uncertainty might lead to… Therefore, in VRX you have a wonderful business, this time with no evident Achilles’ heel, and you have the chance to partner with shrewd businessmen. What more can you ask for? A low price? Ok, I agree! ;)

 

Gio

 

[LC]

disagree. he makes good deals and then operates them to produce cash and high returns on capital. he creates value. If the deal pipeline slows down he will Change course. He will find another way to create value. Because he's not locked into any one strategy. He proved that by buying B&L, which was not the kind of company he had been targeting. He's flexible. if his stock ever trades below intrinsic value he would buy it back. He's a value creator. He's a businessman. He runs the companies like an owner would. Big pharma has been run by caretakers who have bloated organizations and just go through the motions.

Very true! The B&L deal was "out of the norm" based on Valeant's historical dealmaking. That does say something about Mr. Pearson's flexibility!

 

I didn't mean to imply that they are "locked in" to making deals. You are right: Mr. Pearson theoretically has levers to pull at his disposal. I was simply commenting on the mechanics of the business structure and the potential problems which could emerge.

 

Now for myself, I simply don't know Mr. Pearson well enough to know whether he will actually pull all those levers at the "right times". Gio obviously does! Or at least has more confidence one way than the other. Gio is right, I would do well to research the man's past actions to see if he has a history of making good use of the flexibility you mention.

[Phoenix01]

Gio,

 

You have a strong opinion about VRX.  Since we seem to have differing opinions, I was hoping that you might shed some light on the reasons.

 

The cash EPS is basically the earnings without depreciation.  Depreciation is a real cost, even it does not consume cash today.  It looks like they are bringing forward the cashflow at the detriment of long term performance.  That only works for a the short term and the stock price is based on a very bright long term future.  There seems to be a disconnect.

 

wrong. cash EPS is Not earnings without depreciation. it's earnings without amortization. big difference. I suggest you learn the difference before declaring that this company is all about "smoke and mirrors".

 

Hey! We all have different opinions… No need to get upset or be rude, right? ;)

 

 

Gio,

 

Thank you for sticking up for me while I was away.  Your kind nature is appreciated.

[Phoenix01]

Here's my thought of the mechanics of this business:

 

A biotech company raises money, develops a drug, goes through the trials, is ready for commercial introduction. Let's say the costs up to this point are $100. Valeant comes in, pays some multiple of $100, and then produces & sells the drug commercially and reap the cash flows.

 

Then Valeant uses those cash flows to make further acquisitions and keep the cash flows coming, as the initial stream will weaken over time.

 

In terms of the accounting, take a look at the B&L deal. As a result, Valeant recognized 4.31b of intangible assets (which will be amortized) and 4.38b of goodwill (which will not be amortized). Should the amortization of those intangible assets be added back to earnings over time? That is a decision that you have to make about the durability of B&L's cash flows.

 

 

VRX has $13B of intangilbes.  They will be writing this down for some time.

 

If they stop acquisitions today, will the future earnings on the current products be sufficient to pay it back plus make a reasonable return?  If so, they will be sitting on a pile of cash that they can use to pay back their debt + the shareholders for the equity they have put in the company ($25.5B).  If the earnings are less than $25.5B they are destroying value  and if it is more, they will be creating value.

 

How much value will they create and how long will it take to materialize?  What risk are associated with the future stream of revenue?  What premium do you want for deferring the repayment of your investment? 

[giofranchi]

VRX has $13B of intangilbes.  They will be writing this down for some time.

 

Yes! Of course. But you also know that is just an accounting gimmick. As long as Mr. Pearson hasn’t made bad decisions, the value of those intangible assets might very well increase in the future, not decrease… And, as long as Mr. Pearson hasn’t overpaid for them, the return they generate will be satisfactory enough!

 

How much value will they create and how long will it take to materialize?  What risk are associated with the future stream of revenue?  What premium do you want for deferring the repayment of your investment? 

 

Well, I don’t think you have to wait until your retained earnings approach the equity put in the company, to say the company is creating value… Every year Cash Earnings declared, as a percentage of the capital put in the company, are higher than its cost of capital, the company is actually creating value.

 

Gio

 

[giofranchi]

Q4 2013 Earnings Call Transcript

 

http://seekingalpha.com/article/2055563-valeant-pharmaceuticals-international-management-discusses-q4-2013-results-earnings-call-transcript?isDirectRoadblock=false&source=email_rt_article_readmore&uprof=25

 

 

Gio

[Bagehot]

This is interesting but I would be careful.  I spoke with the former top executive of Bausch and Lamb (before the LBO) and described to him the Valeant strategy and he was skeptical that it could work in the vision/eye care business.  He knows B&L's business very well and thinks the R&D "light" approach of Valeant will result in significantly lower cash flows over the LT in part due to competition.  I don't have a horse in this race but if the stock is not cheap and there is a risk that there traditional strategy will not work for B&L, I would be careful here.

 

Packer

 

Packer, that's an interesting comment for a couple of reasons. One is that B&L notoriously underinvested in the contacts business. Basically all the market share COO has picked up over the past 5 years came at the expense of B&L. The new Zeus lens is B&L's first major launch in 10 years, while the other heavyweights have been rolling out new lenses every few years. Part of this is no doubt due to B&L's status as a PE portfolio company, but the point remains. The second reason I think it is interesting is that Brent Saunders left B&L after the deal and went immediately to FRX to implement basically the same strategy. Not sure if you spoke to him or to Solomon.

 

It is undeniably true, however, that manufacturing contact lenses is a capital intensive business that can often be fraught with FDA challenges. Hopefully VRX management isn't penny-wise and pound-foolish in this regard.

 

Thanks for your input, Packer!

[Bagehot]

Here's my thought of the mechanics of this business:

 

A biotech company raises money, develops a drug, goes through the trials, is ready for commercial introduction. Let's say the costs up to this point are $100. Valeant comes in, pays some multiple of $100, and then produces & sells the drug commercially and reap the cash flows.

 

Then Valeant uses those cash flows to make further acquisitions and keep the cash flows coming, as the initial stream will weaken over time.

 

In terms of the accounting, take a look at the B&L deal. As a result, Valeant recognized 4.31b of intangible assets (which will be amortized) and 4.38b of goodwill (which will not be amortized). Should the amortization of those intangible assets be added back to earnings over time? That is a decision that you have to make about the durability of B&L's cash flows.

 

 

VRX has $13B of intangilbes.  They will be writing this down for some time.

 

If they stop acquisitions today, will the future earnings on the current products be sufficient to pay it back plus make a reasonable return?  If so, they will be sitting on a pile of cash that they can use to pay back their debt + the shareholders for the equity they have put in the company ($25.5B).  If the earnings are less than $25.5B they are destroying value  and if it is more, they will be creating value.

 

How much value will they create and how long will it take to materialize?  What risk are associated with the future stream of revenue?  What premium do you want for deferring the repayment of your investment?

 

Hi Phoenix, thought I might could provide some answers to a couple of your questions. First, since Sunbeam and probably before, investors have been rightly concerned with rollups as 'smoke and mirrors' plays that will one day blow up. There are a few reasons to think Valeant is not one of those. First is that ValueAct, who hired Mr Pearson, has maintained a board seat (and a large investment) for the duration of Pearson's tenure. Second, Pearson's pay is structured in a very unique way (see below link) that does incentivize him based on stock price. However, as part of his employment agreement (see most recent proxy) he can't sell any shares except for de minimis amounts to cover taxes until 2017 (and probably longer if he extends his employment agreement). So Pearson can't play a shell game and cash out before the jig is up.

 

Further, the board reviews every significant deal against the deal model on a quarterly basis, a practice I'm not aware of at any other public company. Of all the large deals done by this management team (by my count 17 through 2012, 2013 deals are too early to evaluate) management has stated in an 8-K (don't want to knowingly lie in one of those) that all or on par with or ahead of the deal model from a cash generation perspective. Remember that their models target "at least" 20% cash-on-cash returns before considering tax synergies.

 

As for the sustainability of cash flows, VRX faces no more than a 2.5% headwind from genericization in any of the next 5 years. Everything else is either OTC, generic, devices (contacts, etc), or patent protected for longer than 5 years. Additionally, no individual product makes up more than 3% of sales. So relative to the average pharma firm that typically depends on 1 or 2 major blockbusters to drive the vast majority of profits, VRX would appear to have a more stable asset base.

 

Finally, I take small comfort in this, but others find it more important. The following are large owners of Valeant: ValueAct, Glenn Greenberg, Lou Simpson, Ruane & Cuniff, and Lone Pine. Not exactly a list of suckers, and frankly I don't know of any other stock that has such a well-thought-of group of fundamental-research-driven investors. However, like I said, I put much more credence in our own work and logic than I do the holders list.

 

Hope this helps!

 

http://online.wsj.com/news/articles/SB125106931496352353

 

[giofranchi]

This is interesting but I would be careful.  I spoke with the former top executive of Bausch and Lamb (before the LBO) and described to him the Valeant strategy and he was skeptical that it could work in the vision/eye care business.  He knows B&L's business very well and thinks the R&D "light" approach of Valeant will result in significantly lower cash flows over the LT in part due to competition.  I don't have a horse in this race but if the stock is not cheap and there is a risk that there traditional strategy will not work for B&L, I would be careful here.

 

Packer

 

Packer, that's an interesting comment for a couple of reasons. One is that B&L notoriously underinvested in the contacts business. Basically all the market share COO has picked up over the past 5 years came at the expense of B&L. The new Zeus lens is B&L's first major launch in 10 years, while the other heavyweights have been rolling out new lenses every few years. Part of this is no doubt due to B&L's status as a PE portfolio company, but the point remains. The second reason I think it is interesting is that Brent Saunders left B&L after the deal and went immediately to FRX to implement basically the same strategy. Not sure if you spoke to him or to Solomon.

 

It is undeniably true, however, that manufacturing contact lenses is a capital intensive business that can often be fraught with FDA challenges. Hopefully VRX management isn't penny-wise and pound-foolish in this regard.

 

Thanks for your input, Packer!

 

Here's my thought of the mechanics of this business:

 

A biotech company raises money, develops a drug, goes through the trials, is ready for commercial introduction. Let's say the costs up to this point are $100. Valeant comes in, pays some multiple of $100, and then produces & sells the drug commercially and reap the cash flows.

 

Then Valeant uses those cash flows to make further acquisitions and keep the cash flows coming, as the initial stream will weaken over time.

 

In terms of the accounting, take a look at the B&L deal. As a result, Valeant recognized 4.31b of intangible assets (which will be amortized) and 4.38b of goodwill (which will not be amortized). Should the amortization of those intangible assets be added back to earnings over time? That is a decision that you have to make about the durability of B&L's cash flows.

 

 

VRX has $13B of intangilbes.  They will be writing this down for some time.

 

If they stop acquisitions today, will the future earnings on the current products be sufficient to pay it back plus make a reasonable return?  If so, they will be sitting on a pile of cash that they can use to pay back their debt + the shareholders for the equity they have put in the company ($25.5B).  If the earnings are less than $25.5B they are destroying value  and if it is more, they will be creating value.

 

How much value will they create and how long will it take to materialize?  What risk are associated with the future stream of revenue?  What premium do you want for deferring the repayment of your investment?

 

Hi Phoenix, thought I might could provide some answers to a couple of your questions. First, since Sunbeam and probably before, investors have been rightly concerned with rollups as 'smoke and mirrors' plays that will one day blow up. There are a few reasons to think Valeant is not one of those. First is that ValueAct, who hired Mr Pearson, has maintained a board seat (and a large investment) for the duration of Pearson's tenure. Second, Pearson's pay is structured in a very unique way (see below link) that does incentivize him based on stock price. However, as part of his employment agreement (see most recent proxy) he can't sell any shares except for de minimis amounts to cover taxes until 2017 (and probably longer if he extends his employment agreement). So Pearson can't play a shell game and cash out before the jig is up.

 

Further, the board reviews every significant deal against the deal model on a quarterly basis, a practice I'm not aware of at any other public company. Of all the large deals done by this management team (by my count 17 through 2012, 2013 deals are too early to evaluate) management has stated in an 8-K (don't want to knowingly lie in one of those) that all or on par with or ahead of the deal model from a cash generation perspective. Remember that their models target "at least" 20% cash-on-cash returns before considering tax synergies.

 

As for the sustainability of cash flows, VRX faces no more than a 2.5% headwind from genericization in any of the next 5 years. Everything else is either OTC, generic, devices (contacts, etc), or patent protected for longer than 5 years. Additionally, no individual product makes up more than 3% of sales. So relative to the average pharma firm that typically depends on 1 or 2 major blockbusters to drive the vast majority of profits, VRX would appear to have a more stable asset base.

 

Finally, I take small comfort in this, but others find it more important. The following are large owners of Valeant: ValueAct, Glenn Greenberg, Lou Simpson, Ruane & Cuniff, and Lone Pine. Not exactly a list of suckers, and frankly I don't know of any other stock that has such a well-thought-of group of fundamental-research-driven investors. However, like I said, I put much more credence in our own work and logic than I do the holders list.

 

Hope this helps!

 

http://online.wsj.com/news/articles/SB125106931496352353

 

 

Thank you, Bagehot! Very interesting observations! :)

I have only a question for you: why didn't you include also me in the list of fundamental-research-driven investors?!  ;D ;D ;D

Yes, I know, I can be very funny if I want to! ;)

 

Cheers,

 

Gio

[Bagehot]

Thank you, Bagehot! Very interesting observations! :)

I have only a question for you: why didn't you include also me in the list of fundamental-research-driven investors?!  ;D ;D ;D

Yes, I know, I can be very funny if I want to! ;)

 

Cheers,

 

Gio

 

Accidental oversight, my apologies!

[Phoenix01]

Thank you for the feedback.

 

Here is a link to an older article on VRX.  It gives a nice summary of how Pearson joined the company.

 

http://www.theglobeandmail.com/report-on-business/rob-magazine/how-valeant-became-canadas-hottest-stock/article8889241/?page=all

 

Pearson is paid $1.75 million in base salary, but it’s the long-term incentives that really count. Factoring out dividends related to Valeant’s merger with Biovail Corp. in 2010, Pearson earned $23 million in 2011.

 

Of that, 80% was in the form of stock or option rewards, whereas the median for S&P 500 CEOs is about 50%. That, says Steven Kaplan of the University of Chicago’s Booth School of Business, keeps Pearson’s interests aligned with those of shareholders. “If the stock goes up, he does well, and if the stock goes down, he does much less well.”

 

The key feature of Pearson’s pay package is a grant of 120,000 “performance share units,” which turn into common shares when they vest. But they only vest if Pearson delivers a 15% compound annual return over three years. If he doesn’t, the PSUs are worthless. If he delivers 30%, he’ll get twice the original allotment of PSUs. At 45%, he gets three times, and at 60%, four times. “Everybody told me and him we were crazy to do that, because it’s such a high bar in an era when stocks aren’t performing,” says director Mason Morfit, former chairman of the board’s compensation committee, and the main architect of the pay plan. “Most people would prefer to take the risk out of their compensation plan.”

 

Pearson is contractually bound to hold on to the vesting equity until the end of his term as CEO. That is supposed to deter him from making short-term moves to goose the stock: But, of course, it does nothing to protect shareholders if the company’s high-risk, debt-fuelled growth strategy hits turbulence.

 

 

The incentive is still for Pearson to promote the stock.  The higher it goes, the more shares he gets.  My concern is the 17B in debt.  I will need to figure out the payment profile to see how the danger is spread out.

[Guest wellmont]

he's not promoting the stock. he is making the stock bound skyward by shooting free cash flow into shareholder's wallets with his magic elephant gun. the more cash he shoots out, the higher the stock goes. He is one of the least promotional ultra successful CEOs I have come across. In fact I can't remember ever seeing him on bubble-vision. He under promises and over delivers.

 

 

btw this mason morfit guy is smart, maybe even Tracy Britt smart. here he is at Stanford.

[Liberty]

If anyone's curious about today, as best as I can tell, Jim Chanos revealed that he was short VRX.

 

I couldn't find a clip or transcript of what he said -- if anyone has it, I'd be curious to see it.

 

Best of luck to him on this one, he'll need it I think. His fund apparently lost about 14% in 2013.

[Bagehot]

If anyone's curious about today, as best as I can tell, Jim Chanos revealed that he was short VRX.

 

I couldn't find a clip or transcript of what he said -- if anyone has it, I'd be curious to see it.

 

Best of luck to him on this one, he'll need it I think. His fund apparently lost about 14% in 2013.

 

It is actually a bearish article in Grant's. The article didn't explicitly state that Chanos was short VRX, only that he was the source of the idea to write the article. It also mentioned that Jim Grant's daughter works for Jim Chanos, for whatever that's worth. I will say that the analysis is less detailed than that put forth by some of the bears in this thread. There is no smoking gun by any stretch of the imagination, just the usual "they report 3 different sss metrics" and "Adjusted CFFO doesn't match GAAP CFFO" etc etc. And then they make a couple of disingenuous valuation comparisons by comparing FCF without pro-forma-ing B&L to the capital structure that includes the debt attributable to the B&L acq. Anyway, I don't relish being opposite Chanos and would much prefer to not be involved in battleground stocks. However, as most board members know well given his quixotic attack on FFH in the mid 2000s, Chanos isn't infallible. It's also nice to know that Pearson has more personal downside than anybody (except maybe Glenn Greenberg!). Hope this helps, Liberty!

[Liberty]

Thanks, I appreciate the details Bagehot!

[jschembs]

Best of luck to him on this one, he'll need it I think. His fund apparently lost about 14% in 2013.

 

You do know he runs a short fund?

[Liberty]

You do know he runs a short fund?

 

I do. I meant that after that year, shorting what seems to me like a really fast-growing, reall good company with really good management doesn't seem like the easiest way to turn things around. But as per Bagehot's comment, Chanos might not even be short VRX, so that comment is probably moot.

[Bagehot]

You do know he runs a short fund?

 

I do. I meant that after that year, shorting what seems to me like a really fast-growing, reall good company with really good management doesn't seem like the easiest way to turn things around.

 

Just for informational purposes, I think Chanos gets an incentive fee based on the opposite of the S&P. So if the market is up 30%, he gets an incentive fee based on whatever his fund does relative to -30%. Likewise if the market is down 30, he gets an incentive fee based on whatever his fund does relative to +30%. It is an interesting fee arrangement to say the least. Makes it look like his LPs view him more as macro drawdown insurance rather than as a discrete alpha generator.