Activist hedge fund Pershing Square Capital Management has cut its short position in Herbalife Ltd. (NYSE: HLF) by more than 40%, according to a letter from CEO William Ackman. The firm made a highly publicized short bet of $1 billion against the nutritional supplement company late last year.

Ackman’s bet was based on his contention that Herbalife was operating as a pyramid scheme. So far, however, his has been a nearly lone voice crying in the wilderness. Herbalife stock is up about 125% so far this year, and about the only thing that could have saved Ackman’s investment was a federal investigation of his allegations. That has not happened, and prospects are pretty dim for such an investigation to start.

Ackman has not entirely given up on shorting Herbalife. He has not thrown in the towel, but instead has purchased put options and other longer term options that will limit his exposure only to the premium he pays for those options.

Herbalife currently is having a new auditing firm review its financial statements, and investors have pushed up the share price, expecting the company to get a clean bill of health from the auditors and to launch a large share buyback. Ackman’s move provides some protection against that possibility.

Pershing Square also took a beating on its investment in J.C. Penney Co. Inc. (NYSE: JCP) when Ackman sold his stake in the retailer for a loss of about $600 million late last month. The Wall Street Journal said last month that Ackman’s short bet against Herbalife had cost Pershing Square about $300 million.

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