The fund had a negative return of 13.5 percent in 2016 and negative 20.5 percent in 2015. By comparison, the S&P 500 is up 11 percent annually the last three years.

Pushing them out the door is an 8.6 percent negative return this year through the end of March, which followed a 4 percent losing return in 2017. Total assets now total just $8.2 billion.

Most of the outside investors have departed as restrictions have lifted, a person familiar with the matter told CNBC. The defectors include longtime partner Blackstone Group.

Bill Ackman has seen his hedge fund's assets cut more than in half from their peak above $20 billion in 2015 as institutional investors flee Pershing Square's abysmal returns amid a roaring bull market.

Pershing Square declined to comment for this story. News of the institutional investor exit was first reported by The Wall Street Journal.

Some of Pershing's challenges over the past three years included a $4 billion loss on its stake in Valeant Pharmaceuticals. Ackman's short of nutritional supplement company Herbalife proved costly not only in money lost, but also in reputation because of the high profile battle over the company with Carl Icahn.

Pershing also remains the largest investor in Chipotle Mexican Grill with a 10.3 percent stake in the company, according to FactSet. While that investment remains a loss for the fund, Chipotle shares have rallied 26 percent since the restaurant appointed Brian Niccol as chief executive, a move Pershing has celebrated. Niccol took over last month.

Ackman earlier this year cut one-fifth of Pershing Square Capital staff, including one investment professional and several operational positions, as outside investors fled the fund. Reuters earlier reported the layoffs and said Ackman intends to reduce his time in the public sphere, opting instead to focus on investing.

Pershing has clinched some modest investing victories over the past year, including $100 million profit from its brief stake in Nike. CNBC reported in January that Pershing Square started buying Nike in October when it was trading in the $52 to $53 per share range, according to a source.

Ackman's hedge fund woes are not alone. Several high-profile funds have disappointed in recent years, including David Einhorn's Greenlight Capital and Nelson Peltz's Trian Fund Management, which posted gains of just 1.6 percent and 3.7 percent respectively last year. Einhorn told clients earlier this week that the fund suffered one of its worst quarters.