Could Chinese Regulators Make Bill Ackman Richer?

Could Chinese Regulators Make Bill Ackman Richer?

Dealing with regulators can be a challenge for any business. It’s especially true for companies that might be declared lawbreakers at any time.

So it’s no surprise that shares of Nu Skin Enterprises Inc. have plummeted about 37 percent since the Chinese government said that it would investigate the personal-care company on the grounds that it might be an illegal pyramid scheme. The probe comes a day after the publication of a report on the company in the People’s Daily, the official newspaper of the Communist Party of China.What’s bad for Nu Skin could be good for Bill Ackman, the hedge-fund manager who has spent more than a year attempting to profit from his bet that Herbalife Ltd., which makes and sells dietary supplements, also is a pyramid scheme and would get shut by regulators. Ackman’s investment has cost him hundreds of millions of dollars so far. He also suffered a significant setback in December, when a Belgian court rejected claims that the firm’s reliance on multilevel marketing made it a pyramid scheme. The latest news, however, has caused Herbalife shares to fall about 10 percent. (Usana Health Sciences Inc., which seems to be in a similar business, also lost about 10 percent as a result of the Chinese announcement.)

Ackman and his investors may want to hold off on the celebrations. Chinese regulations prevent Herbalife from engaging in some of its normal business practices. Partly as a result, the country accounts for only about a tenth of Herbalife’s sales, according to the company’s most recent quarterly filings. That makes the recent drop in Herbalife’s share price look overdone. (On the other hand, China is the company’s fastest growing geographic segment by sales.) Even if the Chinese government decided to expel the company, Herbalife’s limited exposure ought to put a floor under its stock price — unless other regulators decide to follow China’s lead. That’s a possibility, though it seems like a long shot.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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