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Bill Ackman Wants Your Money

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Bill Ackman started his current hedge fund, Pershing Square LP (PSLP), in 2004. PSLP is kind of what you think of when you think of a hedge fund: It raised lots of money from big investors, it invests in concentrated bets (largely on stocks but also credit, interest rates, other things), it has done activist long investing and also short selling, and it charges pretty close to the traditional “2 and 20” fee structure, or rather 1.5 and 20: Investors pay a 1.5% annual management fee on their assets, plus 20% of their gains.

In 2014, Ackman launched a new fund, Pershing Square Holdings (PSH). PSH is not a traditional hedge fund: It is a publicly traded closed-end fund. Investors could put money into PSH — they could buy shares of the fund from PSH — but they can’t take money out; if they want their money back they have to sell shares on the stock exchange. This makes PSH a “permanent capital vehicle,” which is useful for a hedge fund manager making big bets: If investors are dissatisfied, they can’t just demand their money back. I sometimes say that the essential skill of a hedge fund manager is not picking stocks that go up but rather continuing to run a hedge fund, and in some sense raising a multibillion-dollar permanent capital vehicle when times are good is a the very best possible thing for a hedge fund manager to do. And in 2014 Ackman did it.

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