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Hedge fund manager Ackman says mistakes made in JCPenney turnaround

William Ackman, chief executive and portfolio manager of Pershing Square Management, speaks during the Harbor Investment Conference in New Y
William Ackman, chief executive and portfolio manager of Pershing Square Management, speaks during the Harbor Investment Conference in New Y

By Svea Herbst-Bayliss and Katya Wachtel

BOSTON (Reuters) - Hedge fund manager William Ackman is turning up the heat on the man he handpicked to turn around struggling retailer JCPenney .

The "criticism is deserved," Ackman said on Friday of Ron Johnson, the former Apple executive who has been tasked with overhauling the staid retail chain and who has come under fire as the stock price has plummeted 27.6 percent in the first quarter.

While Ackman has long been a public cheerleader for Johnson, often saying that he was a doing a great job, he tempered his normally upbeat comments on Friday at an investment conference sponsored by Thomson Reuters in Boston.

Speaking bluntly, Ackman, who sits on the JC Penney board and whose $12 billion Pershing Square Capital Management is the company's largest shareholder, said big mistakes have been made remaking the 110 year-old retail brand.

JC Penney traditionally drew in customers with big sales and coupons but Johnson has been criticized for eliminating those in favor of every day low prices. The new strategy has alienated the retailer's traditional customer base and has yet to resonate with new shoppers.

There was "too much change too quickly without adequate testing," Ackman said, adding that while Johnson faces a tough challenge in fixing the company's cost structure and changing the merchandise, so far the execution "has been something very close to a disaster."

Ackman has come under criticism for investments in retailers in the past, including bets on Target and book seller Borders a few years ago. Currently Pershing Square is sitting on roughly $500 million in paper losses in JC Penney. Still, Ackman said that the retailing business can be very lucrative if done right.

"If you get a retailer fixed and you can replicate it, it's about the best way to make money," he said.

While JC Penney's losses are making headlines, Ackman's portfolio gained 6.1 percent during the first quarter thanks to bets on Canadian Pacific Railway and Procter & Gamble .

In a nod to his ongoing commitment to JC Penney's fortunes, the billionaire investment manager wore socks purchased at JC Penney.

At the conference Ackman was also asked about his other high profile investments, including nutritional supplements company Herbalife on which Pershing Square has a $1 billion short bet, expecting the multi-level marketing company's share price will move to zero.

The investment has been the talk of Wall Street in recent months as other well-known hedge fund managers, including Carl Icahn and Daniel Loeb, moved to the other side of the bet with long positions in Herbalife.

"Taking a short position and going public with it is a pretty serious business," Ackman said. "Did I think a group of hedge fund managers would take the other side of the trade and try to orchestrate a short squeeze? No, I didn't think that," Ackman said.

Talking about the public feud over Herbalife Ackman said that the $2.25 trillion hedge fund industry, once close-knit where managers often worked collaboratively, now seems much more competitive.

"This was the first case where there was a lot of sniping going on between managers," he said, referring to the recent backbiting over the Herbalife trade.

But he acknowledged that hedge fund managers can't be overly sensitive. "You have to have thick skin to be in this business."

(Reporting by Svea Herbst-Bayliss and Katya Wachtel; Editing by Phil Berlowitz)

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