A look at Bill Ackman's new fund – Pershing Square USA
I'm always interested to see what my college buddy Bill Ackman of the famed Pershing Square hedge fund is up to...
And Bill is planning to launch a U.S.-based closed-end fund, Pershing Square USA, in the near future.
Given his fame, track record, and the massive amount of money he's seeking to raise ($25 billion, reportedly), many of my readers might be considering investing in the new fund... so I wanted to share my perspective.
As background, Bill and I have been friends for 38 years since we met in college in 1986, and I've long respected him as an investor (and a generous philanthropist – full disclosure: I've been on the board of his foundation since its inception in 2006).
I credit him for starting me on my investing journey in the mid-1990s, not long after I had graduated from Harvard Business School. I had my first savings of my life, so I asked Bill how to invest it, and he said:
Read everything Warren Buffett has ever written, and you can stop there. That's all you need to know.
It's the best advice I've ever gotten...
To drum up interest for his new fund, Bill is doing a "road show." Here's the press release, and here's a Bloomberg article from last week about it: Pershing Square Starts IPO Roadshow for US Closed-End Fund. Excerpt:
[The fund] will likely raise money mostly from institutional investors with some retail interest as well, a person with knowledge of the matter said last week.
It has set the [initial public offering ("IPO")] price at $50 per share, will apply to list on the New York Stock Exchange and intends to trade under the symbol PSUS, the Tuesday filing confirmed.
"With lower required costs than his typical hedge fund fees and social media popularity, the US-listed Pershing Square USA Ltd. could become the largest closed-end fund in the country and trade at a premium to its net asset value," Bloomberg Intelligence analyst David Cohne wrote last month.
To see the 29-slide road show presentation, which Bill narrates over 41 minutes, click here and select "Pershing Square USA, Ltd. (IPO)."
To decide whether to invest in his new fund, there are two main questions to ask...
First, is the past a good predictor of the future?
In the investing world, chasing performance in an attempt to get rich quickly is the surest route to get poor quickly. Will Bill be an exception and continue to outperform?
I think the answer is likely yes, because he has the two basic things I look for in any investor: the right skills and the right approach. (For each, there are eight traits I look for – which I'll detail in tomorrow's e-mail.)
Regarding the approach, in my June 25 e-mail, I wrote:
Among professional money managers, I think Bill comes closest to following the "10 for 10" strategy I outlined in Thursday's e-mail – buying only 10 stocks and having an average holding period of 10 years.
This strategy implies replacing roughly one stock a year on average and involves very little rebalancing since the key to long-term investment success (as I've written many times before) is letting your winners run.
As I also explained, Bill holds a concentrated portfolio:
The 2023 annual report (specifically, pages 115 and 116) from Bill's Pershing Square Holdings shows an extremely concentrated portfolio of nine stocks (it had been 10 until Bill sold Lowe's (LOW) recently). Here's the breakdown:
And I mentioned that his portfolio has low turnover:
This graphic from the report shows that over the past two decades, Bill has had only 45 significant long positions – a little more than two per year:
(Note that my analysis of Bill excludes a half-dozen shorts – an activity he abandoned after his failed campaign against Herbalife (HLF) – and a handful of one-off derivative bets like his famous credit-default swap investment on the eve of the COVID crash, when he turned $27 million into $2.6 billion in a matter of weeks.)
And as I said, Bill has held those stocks I showed in the table above in his portfolio for an average of eight and a half years:
In summary, Bill is practicing something pretty close to the "10 for 10" strategy I outlined.
This, combined with his experience, smarts, relationships, etc. – plus the occasional macro trades he has made so successfully in his career, the most recent two related to anticipating the pandemic and rising inflation – makes it a good bet that his investments are likely to outperform the market.
But there's another question investors need to consider...
Where will the new fund's stock trade relative to its net asset value ("NAV")?
Keep in mind that Pershing Square USA is not a mutual fund. So if investors want out, they can't redeem – instead, they simply sell the shares.
But there's no guarantee that the shares will trade at the fund's NAV. In fact, Pershing Square's offshore closed-end fund, Pershing Square Holdings (PSHZF), has always traded at a discount to NAV that, at times, has exceeded 35% and is currently above 20%.
So why would anyone buy the new fund at the IPO – why not buy it at a discount to NAV after it starts trading?
Well, the fund might not trade at a discount. And it could trade at a premium, as Bill's special purpose acquisition company ("SPAC"), Pershing Square Tontine Holdings, did for most of its existence – until the U.S. Securities and Exchange Commission blocked its acquisition of Universal Music Group (UMG.AS), which ultimately led Bill to close it and return capital to investors.
There are many reasons why the new fund might trade much better than the offshore one, including: It will be larger and more liquid, it won't be burdened with complex tax issues for U.S. investors, and it won't charge a performance fee (it will only charge a management fee, which is waived for the first year and will be 2% annually thereafter).
In conclusion, I think Pershing Square USA will likely end up being a good investment.
But will it rise to the level of one of the best investments my team and I here at Stansberry Research can find?
That remains to be seen. If it does end up looking compelling enough, we would recommend it in an upcoming issue of our flagship newsletter, Stansberry's Investment Advisory.
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Best regards,
Whitney
P.S. Greetings from the northern Cascade Mountains in Washington near the Canadian border – where, for the ninth year in a row, I'm climbing to raise money for my favorite charity cause: KIPP charter schools.
On Sunday, I flew to Seattle and that night pulled an all-nighter climbing the North Ridge of Mount Baker with my longtime guide. In total, we covered 13.3 miles and 6,644 feet of vertical in 15 hours.
Below are some pictures – note the KIPP T-shirt I'm wearing at the summit! I posted more pictures and details about my climb, including an injury to my toes that required me to go to the local emergency room last night, on my Facebook page here.
P.P.S. I welcome your feedback – send me an e-mail by clicking here.