Bill Ackman is one of the world’s highest-profile investors—and he’s coming for your money.
Ackman, 58, is seeking to capitalize on his celebrity status—he has 1.2 million followers on X—by selling a New York Stock Exchange–listed equity-oriented closed-end fund, Pershing Square USA (ticker: PSUS), to investors by the end of July. Ackman’s ambitious goal, according to people familiar with the situation, is to raise $25 billion, although it’s too early to determine whether demand will be sufficient to reach that amount.
Ackman is betting that investors won’t blanch at a 2% annual management fee—steep for an actively managed fund, which typically charges 1% or less. Ackman’s Manhattan-based management company, Pershing Square Capital Management, will waive the fee for the first year and plans to invest $500 million in the new fund.
The timing is good for Ackman, who is riding high after a rough period from 2015 to 2017 when he badly lagged behind the
due to losses on investments such as drugmaker Valeant Pharmaceutical.
His main current investment vehicle, the London- and Euronext-listed
has returned 28% annually over the past five years, against 15% for the S&P 500. Since its inception nearly 10 years ago, however, the fund is trailing the S&P 500 by about four percentage points annually.
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With a $10 billion market value, Pershing Square Holdings is available to U.S. investors, changing hands over the counter under the ticker PSHZF.
“Ackman made mistakes, but learned from them. That’s good. He has gotten a lot better over time,” says Bryn Torkelson, president of Matisse Capital, whose Matisse Discounted Closed-End Strategy mutual fund counts Pershing Square Holdings among its largest holdings.
Ackman’s new closed-end fund plans to take a concentrated approach and invest in 12 to 20 of what its prospectus calls “durable North American growth companies.”
That’s consistent with his recent track record, as Ackman has shed his activist mantle in recent years, given up shorting after a disaster with
nearly a decade ago, and cut portfolio turnover. Pershing Square Holdings made only one notable portfolio change in 2023, selling
and buying
Alphabet
.
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Some of the stocks in the new closed-end fund could overlap with Pershing Square Holdings, which is highly concentrated with top holdings in stocks such as
Restaurant Brands International
,
Alphabet, Hilton Worldwide Holdings, and
Ackman said in late May that he sees an “idea rich” environment for investing, with the stock market dominated by megacap growth companies such as
Nvidia
,
Alphabet, and
He said he has added two new investments but declined to name them.
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One obstacle for the new fund is that investors have an alternative in Pershing Square Holdings, which trades at a nearly 25% discount to its net asset value. It fetches $54 a share, and its portfolio value is about $70 per share.
Given the potential narrowing of the big discount, Pershing Square Holdings looks like a better bet for investors than the new fund, which is likely to trade initially in line with the value of its portfolio.
A closed-end fund issues a fixed number of shares and trades on an exchange. The fund price tracks the underlying asset value but can trade at a discount or premium to its portfolio value based on investor demand. Most closed-end funds now trade at discounts to their asset values.
The launch of the closed-end fund is tied to Ackman’s plans for his asset-management company. He recently sold a 10% stake in Pershing Square Capital Management for $1.05 billion to a group of investors, including insurer
which values the entire company at a steep $10.5 billion.
Ackman’s personal wealth soared with the sale. He owned half of the management company before the sale, valuing his stake at $5 billion; plus he owns over 20% of Pershing Square Holdings, a stake worth over $2 billion. That puts his wealth at over $7 billion.
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The management company is expected to go public in 2025 after Wall Street sees how much money Ackman can raise with the new fund and other potential ventures. His firm now has about $17 billion of net assets.
A $25 billion target for the new fund is challenging for several reasons. Active equity funds are out of favor, as investors favor passive vehicles like exchange-traded index funds. The $300 billion closed-end fund market, in particular, has been moribund over the past two years with virtually no new issues. Size is also an issue—the largest existing closed-end fund, from bond specialist Pimco, totals $6 billion.
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Ackman likes the closed-end structure because investors can’t redeem shares. This provides him with two main benefits. As an investor, Ackman gets staying power and scores as the controlling shareholder of his management company due to a predictable annual income stream. Raising what the industry calls permanent capital is the goal of nearly every major asset-management company—both traditional and alternative.
A 2% fee, though, is steep for a concentrated actively managed fund that could be replicated by investors. The fee also makes it harder for Ackman to beat index funds, which often charge 0.1% or less annually.
Torkelson says that closed-end funds usually wind up trading at a discount to their asset value, but notes that the new Ackman vehicle could be an exception. If a fund moves to a discount, investors can lose money if they sell it even if the portfolio increases in value.
Ackman has argued that he has delivered market-beating performance over a career of 20 years and that part of his value-add is a secret sauce of nonequity investments that can’t be easily replicated by investors. His biggest score was a pre-Covid bet against U.S. corporate credit spreads that netted over $2 billion on an investment of less than $30 million.
However, Ackman’s macro bets for Pershing Square Holdings last year—including a bullish bet on energy and another involving Japanese interest rates—cost the fund about two percentage points of performance.
Still, the new fund’s fees are more favorable than that of Pershing Square Holdings, which charges a 1.5% annual base fee and takes 16% of the fund’s gains, subject to a high-water mark.
Ackman is betting that U.S. investors will like the simplicity of the new fund and its domestic listing. But even with the higher fee structure, Pershing Square Holdings looks more appealing than the new fund, given its large discount to its NAV and the steps that Ackman is taking to narrow that discount.
The initial public offering of the new fund could help narrow the discount on Pershing Square Holdings by reducing the incentive fee on that fund to 16% based on a formula. The larger the IPO, the bigger the fee reduction.
One knock against Pershing Square Holdings is that it can be tough for U.S. retail investors to buy through some brokerage firms due to the offshore listing. The fund also generates a so-called PFIC tax form that is more like a K-1 for master limited partnerships than a simpler 1099.
Tax expert Robert Willens says the tax treatment “is not the ideal scenario for U.S. investors.” But he adds that PFIC funds are taxed “identically to a partner in an MLP,” which hasn’t deterred many investors from buying MLPs.
Barron’s has written favorably on Pershing Square Holdings as a way to invest alongside Ackman at a big discount, which has been over 35%. We have been critical of the fee structure as high, particularly since there is no hurdle rate to earn it.
During 2023, Pershing Square earned a management fee of $155 million and $312 million of incentive fees. The fund, which returned 26.7% after fees last year based on its NAV, narrowly topped the S&P 500, which returned 26.2%.
Ackman has a small investment organization with about 40 people in total, including eight investment pros. Pershing Square’s fee bonanza last year meant that 13 key staff members shared over $300 million, or an average of more than $20 million each, according to the fund’s annual report.
The new fund probably will target retail investors, and Ackman’s name recognition will help. No major investor has a bigger social-media presence than Ackman, although he usually avoids investment-oriented topics.
A Harvard University graduate, Ackman is a strong supporter of Israel and a critic of diversity, equity, and inclusion policies. He helped marshal opposition to Harvard President Claudine Gay, which led to her departure from the post in early January.
Ackman also has been a critic of President Joe Biden, citing what he views as Biden’s declining mental acuity.
“We should all be embarrassed as Americans that this is the candidate the Democratic Party has chosen,” Ackman tweeted this past Thursday after Biden’s appearance at D-Day ceremonies in Normandy. There have been reports that he is leaning toward supporting Donald Trump in November.
Ackman’s activities have made him catnip for the media, with long articles appearing about him in the New York Times and Washington Post this year. The Post wrote that “Ackman’s evolution mirrors many elites who, like the hedge fund manager, see themselves as moderates and not culture warriors.”
Ackman’s management company, Pershing Square Capital Management, will likely be one of the priciest investment firms after its IPO based on the recent sale of the 10% stake.
One valuation metric is market value relative to assets. Traditional asset managers like
are valued at 1% to 3% of assets, while higher-fee alternative managers like
and
are valued at 10% to 15% of assets. Pershing Square is valued at nearly 60% of assets.
If Pershing Square gets to $50 billion in assets next year from a successful new fund, other potential ventures, and asset appreciation, the company would be valued at about 20% of assets, still higher than peers. That’s an optimistic scenario.
The bull case is that Ackman has a small organization and can generate very high margins, especially as assets grow. Key-man risk, however, is high at Pershing Square because the company is so identified with Ackman. That argues for a lower valuation on the management company, especially with Ackman approaching 60.
In the near term, the focus will be on the new fund and whether Ackman can pull off the tough feat of selling a huge actively managed fund at a time of weak investor demand.
Ackman has beaten the odds before. He’ll have to do it again.
Write to Andrew Bary at andrew.bary@barrons.com
