Pershing Square is a holding company structured as a closed-ended fund. It was launched in 2012 under the patronage of the eponymous Capital Management entity, the creation of hedge fund manager Bill Ackman, who also co-founded the investment house Gotham Partners.
In a sense, Mr Ackman and his business partner at Gotham, David Berkowitz, were trailblazers in the hedge fund world, in that they openly shared the reasons why they had taken certain portfolio positions, long or otherwise, at a time when 'talking your book' was looked upon with a little more suspicion than it is today.
The activist activities at Gotham helped to raise Mr Ackman’s public profile, although contrary to the axiom, not all publicity is good publicity. Gotham eventually came unstuck after its diversified portfolio gave way to one largely comprised of thinly traded public companies and some private entities. Readers of this magazine, at least those familiar with the Woodford Equity Income fund saga, will be aware of the danger posed by the concentration of illiquid investments within a given portfolio, particularly when investors start asking for their money back.
Strangely enough, by 1997 the hedge fund had become one of America’s leading golf course operators. Unfortunately, the investment turned sour when the underlying property values started to contract. Gotham examined the prospect of refinancing via a debt-for-equity swap, while Messrs Ackman and Berkowitz took the decision to publish favourable research in support of large positions they had accumulated in certain companies, the intention of which is still open to question. The move eventually attracted the attention of Eliot Spitzer, the then New York State attorney general, but the writing was already on the wall for Gotham as the redemption notices flooded in.
It is difficult to gauge what lessons Bill Ackman may have learnt from the Gotham affair. Certainly, the Pershing Square portfolio is conservative by comparison to the Gotham mix. It is comprised of just 10 stocks, mostly predictable – and readily apprehensible – businesses that have defendable positions within their respective markets, the likes of Restaurant Brands International (TSE:QSR) and Hilton Worldwide Holdings (US:HLT). Somewhat ironically, the hedge fund exited its position in Warren Buffett’s Berkshire Hathaway (US:BRK.B) in May to seek out higher returns elsewhere.
Presumably, the hedge fund manager envisages profitable opportunities through M&A once the full financial impact of the pandemic becomes apparent. Earlier this year, Pershing Square Tontine Holdings (US:PSTH) listed on the New York Stock Exchange. It acts as Ackman’s Special Purpose Acquisition Company (SPAC), an entity formed to raise finance for a specific purpose, most often the acquisition of a third-party company. The investment vehicle went public despite having no real operating business.
We do not know if Mr Ackman’s recourse to these 'blank cheque' companies or 'cash shells' will have any impact on admissions in the UK, even if we witness a surge in distressed assets over the coming months. SPACs have accounted for around 40 per cent of initial public offerings in the US this year and the Financial Times recently reported that the LSE was exploring ways to attract SPACs to the UK market, in hopes of spurring a similar surge in admissions this side of the pond. It is worth noting that the Pershing debut in London came a few days after Marwyn Value Investors (MVI) launched three new acquisition vehicles in London.
Pershing Square closed out its first day of trading as a benchmark constituent at a 25 per cent discount to its November net asset value. Aggregate net growth stood at 62.8 per cent in the year to date, while the dollar value of the portfolio reflects a 92 per cent large-cap allocation. Impressive enough, although rather staid compared with some of the fund manager’s early forays into the market, even though he still had the nerve and insight to garner around $2.6bn for Pershing earlier this year by utilising defensive hedge bets as the outbreak threatened a severe economic recession.