Shares in Bill Ackman’s investment management firm Pershing Square Inc (PS) fell in debut dealings on the New York Stock Exchange. So did shares in Pershing Square’s new US hedge fund Pershing Square USA (PSUS).
But the billionaire investor insists shareholders in UK-listed Pershing Square Holdings (PSH) should benefit in three ways following the combined IPOs.
Costs coming down
‘We are pleased that PSH shareholders will benefit from reduced performance fees going forward as a result of the successful completion of the IPO of PSUS, our new US-listed fund,’ said Ackman.
‘We believe our newly public management company, PS, has the potential to serve as a platform for other new funds to be launched in the future, which could yield further reductions in PSH’s performance fees.’
On a call with UK journalists, Ackman added that Pershing Square USA’s IPO should help narrow the London-listed fund’s stubbornly wide share price discount to net asset value (NAV).
The double offering should also should improve transparency surrounding Pershing Square Holdings’ investments. Pershing Square USA is a ‘mirror fund’ that will closely resemble Pershing Square Holdings.
Buffett playbook
The London-listed trust offers investors exposure to a highly concentrated portfolio of large North American companies.
As of 31 March, these included Alphabet (GOOG), Amazon (AMZN) and Meta (META). Other positions included Universal Music (UMG) and property developer Howard Hughes (HHH).
Last year, Pershing Square subscribed $900 million for new shares as part of a strategy to turn Howard Hughes into a diversified holding company similar to Warren Buffett’s Berkshire Hathaway (BRK.B).
Why the floats flopped
Pershing Square USA raised a bumper $5 billion (£3.7 billion) in its IPO. But the fundraise fell below the $10 billion-plus Ackman originally wanted.
Shares in Pershing Square USA tumbled in debut dealings on 29 April. The stock opened at $42 and closed the day at $40.90. That was down 18.2% from its initial offering price of $50. Ackman blamed forced selling by some retail buyers for the IPO flop.
Distributed to Pershing Square USA investors as a bonus, shares in Ackman’s fund management group Pershing Square Inc also dropped below their $32 IPO price.
On the call with UK journalists, Ackman sounded confident that Pershing Square US investors will eventually do well from their shares. This is so long as Pershing Square Capital Management continues to outperform the US stock market.
Pershing Square Holdings’ investors will welcome the reduction in performance fees arising from the US IPOs. High fees are one of the reasons the fund trades at a cavernous 33.7% NAV discount. Other factors include the complexity of the hedges employed by Ackman, which some investors find off-putting.
Poor transparency for the trust’s highly concentrated portfolio hardly helps. This concentration means returns can be significantly impacted by one holding.
Going forwards, greater transparency around the moves Ackman and his team are making can only help to improve the rating of this differentiated trust.
Read the press release here: https://www.londonstockexchange.com/news-article/PSH/pershing-square-holdings-ltd-psh-notes-the-closing-of-initial-public-offering-of-pershing-square-usa-ltd-psus-with-aggregate-offering-size-of-5-billion/17573073
Disclaimer: The author (James Crux) owns shares in Pershing Square Holdings.
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