Exclusive: ValueAct gains for the year wiped out by Valeant loss

By Michael Flaherty

(Reuters) - Activist investor ValueAct Capital said its fund fell 8.3 percent during the third quarter, wiping out its gains for the year, hurt by a plunge in shares of its main portfolio company, Valeant Pharmaceuticals International Inc (NYSE: VRX).

For the nine months ending on Sept. 30, the ValueAct Capital Master Fund was down 0.9 percent, ValueAact said in a letter to investors which was seen by Reuters on Monday. As of the second quarter, the fund had been up 8 percent for the year.

ValueAct also said it is launching a new offering for investors that would lock up their money for five years. This new investment tranche will allow ValueAct to draw down capital over a period of three years rather than receive it up front.

"The fund performance in the third quarter was difficult and disappointing," said the letter, dated Nov. 12, adding that ValueAct saw 10 percent or more share price declines in four of its largest core investments.

Valeant shares plunged by more than half this fall amid questions about its use of specialty pharmacies to market and sell certain drugs.

Since the fund's inception in 2000, it has appreciated 15.9 percent on a net annualized basis, making it one of the best performers in the activist sector.

The letter gave updates of the fund's core investments, which include stakes in British industry group Rolls-Royce Holdings Plc (NYSE: RR), media group Twenty-First Century Fox Inc (NASDAQ: FOX), and software company Microsoft Corp (NASDAQ: MSFT).

The bulk of the third quarter update, however, focused on Valeant, which was attacked by short-sellers and is the subject of a federal subpoena related to its drug pricing of certain products.

ValueAct said the firm has experience in crisis management and that it is confident that it can help the company make the right decisions for the long-term interest of its shareholders. But the letter said that the Valeant turnaround will be a big project for two ValueAct professionals - Partner Rob Hale and President Mason Morfit - both of whom are on Valeant's board.

"During the next three to six months, Mason and Rob will likely need to spend the majority of their professional time working on Valeant," the letter said.

Based in San Francisco, ValueAct was founded in 2000 by Jeffrey Ubben, its chief executive and chief investment officer.

(Reporting by Michael Flaherty in New York; editing by Jonathan Oatis, Bernard Orr)

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