By Svea Herbst-Bayliss BOSTON (Reuters) - Hedge fund billionaire William Ackman is facing mounting pressure as his high-stakes bet against nutrition and weight loss company Herbalife enters its second year, but for now, his investors look ready to stick with him. The founder of Pershing Square Capital Management has seen the value of his $1 billion short play against Herbalife lose nearly three-quarters of a billion dollars in 2013, making it one of the 10-year old fund's riskiest bets. And if equity analysts and his billionaire rivals, Carl Icahn and George Soros - who own chunks of Herbalife stock - are right about the company's growth prospects, that bet could look even worse in the next several months. After an audit by PricewaterhouseCoopers gave Herbalife's books a clean bill of health this week, one year after Ackman publicly called the company a pyramid scheme, analysts said it was only a matter of time before Herbalife buys back shares. This prompted D.A.Davidson & Co. analyst Tim Ramey, a long-time Herbalife bull, to raise his price target for the company's shares to $115 from $92. Janney Montgomery Scott analysts, meanwhile, lifted their price target to $85 from $79. That is a far distance from the $33.74 where the stock closed a year ago on December 20, 2012 the day Ackman made his allegations plus his prediction that regulators would shut the company down. His presentation and speculation the day before that he was short the stock had pushed the stock price down 21 percent in two days. Even in the face of a 137 percent stock gain since then, Ackman has said he will take his short bet against the company "to the end of the earth" - a clear sign he intends to hang on to the position. And investors who know Ackman's history say the 47-year old can be patient. He waited three years before getting out of his losing J.C. Penney bet and seven years before his bet against bond insurer MBIA paid off. To guard against investors getting cold feet and leaving him too quickly, he forces them to lock up their money longer than many others, something analysts say makes sense for his activist strategy. "So long as (Ackman's) view and conviction do not change, the correct thing for him to do is hold the position," said Michael Weinberg, a professor at Columbia University's business school and chief investment officer at an investment adviser based in New York, adding that he had no opinion on Herbalife. "(Ackman) has had many positions where he has ultimately been right, but a few years early," he said. But much will depend on his investors and how long, if at all, before federal agencies act. "He is still having a decent year, despite the J.C. Penney loss and the Herbalife problems, and that says that he is still more right than he is wrong," said one investor, who asked not to be named because he was not authorized to speak publicly about his firm's investments. Ackman has some room to breathe. Lucrative bets on real estate and rail have kept him in the black in 2013 with the fund up 10 percent in mid-December. While he trails the Standard & Poor's 500 25 percent gain, Ackman is doing far better than the average hedge fund, which is up only 6 percent. Gains in Canadian Pacific Railway and real estate company Howard Hughes Corp are the portfolio's growth engines and even if Ackman realized his Herbalife losses today, his fund would be well into the black. But there is some evidence he is stepping up his efforts to push regulators to take the kind action he needs for his bet to ultimately pay off. For the first time, he has hired lobbyists in Washington - including Wexler & Walker - to press his views, someone familiar with the fund said. Privately, Ackman has told investors in the last months that he remains cautiously optimistic regulators will act, especially after he and rights groups have brought the issue to the attention of some states' attorneys general. HUGE AND GROWING But the Herbalife losses are huge and growing. Based on what Ackman paid to short roughly 20 million shares in Herbalife, his losses have now climbed to about $700 million, investors have estimated. Pershing Square did not comment, but Ackman told Bloomberg in late November the position then was down $400 million to $500 million. The fact that analysts and investors now expect the company to raise new money and repurchase shares in the wake of the PricewaterhouseCoopers reaudit could propel the company's stock even higher and turn Ackman's battle against Herbalife into a battle against the clock. "There are only so many points at which this bet could take a turn, and getting this audit was clearly one of them," said another investor in Ackman's fund. The high-stakes standoff comes amid growing skepticism in medical spheres over the value of dietary and vitamin supplements. Recent studies and an editorial published in The Annals of Internal Medicine have suggested they provide no health benefits, and should be avoided. (http://annals.org/article.aspx?articleid=1789253) (Reporting by Svea Herbst-Bayliss; Editing by Richard Valdmanis and Leslie Gevirtz)
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