Pershing Square


Pershing Square Holdings has listed in London in what appears to be a move designed to garner investor support. Unusually for a major hedge fund, it is not seeking to attract wealthy family offices or university foundations; instead, it is looking to attract investment from ETF providers.

With a market capitalisation of some $3.9bn, the closed-end fund or investment trust will become a constituent of the FTSE 250, and will therefore attract index tracking ETFs and funds. The reason for the listing appears to be that founder Bill Ackman is frustrated at the fund’s discount to NAV which is currently c.16%.

This is hardly unusual, indeed Third Point, arguably a much more successful fund and certainly a better performer than PSH since the latter’s inception, is trading at an even wider discount, almost 20%; its performance has been better than Pershing Square Holdings and yet its discount is higher. (Part of the reason may be technical: Third Point has a slightly unusual dividend policy, as dividends are paid out of and are dependent on capital gains; Pershing Square does not pay a dividend.)

Ackman was quoted in the Financial Times summarising the investment case for his fund as “more liquidity, index support, it’s a real bargain”. One can only admire the marketing effort behind this latest corporate move – the chart shows the fund’s performance since inception. It has badly lagged the S&P by around 70% since its flotation, in spite of having an average of probably 10 holdings. 

Ackmann’s trials and tribulations on his investment in Valeant are well known - he bet $3.9bn (in this fund and his hedge funds) and lost over 90% of his investors’ money. To be fair, his fund has recovered somewhat in recent months, but the gap vs a simple S&P 500 index-tracking ETF remains vast. With performance like this from a very public poster child, it is little wonder that the “2 & 20” set are attracting criticism.

The performance is no surprise to informed investors. That they have picked 8-12 stocks and failed to produce a positive return is clearly disappoint8ng for shareholders. Moreover, it is unlikely to be just Valeant – that may have cost the fund c 10%, but it would be unlikely to be much more (and if it were more, that raises a broader question about risk management). Note that the fund is not a traditional hedge fund and only has one short (on which positive returns are expected), and hence this is not the explanation for the fund lagging the index.

There seems no logical reason for this fund to be in the FTSE 250. Its listing appears to seek to exploit listing rules in an attempt to profit the fund’s current investors (a legitimate goal). We shall see if the discount to NAV narrows, but that may not happen, especially if Ackmann does not improve the performance.