Bill Ackman’s Bold Move: Pershing Square’s Public Listing Plans & the Road Ahead

Bill Ackman’s Bold Move: Pershing Square’s Public Listing Plans & the Road Ahead

Edited by: TJVNews.com

Bill Ackman, the renowned hedge-fund manager, is making headlines with his ambitious plans to take his investment firm, Pershing Square, public. This move represents a significant shift in the landscape of hedge funds, leveraging Ackman’s social media fame and robust market strategies, as was reported by The Wall Street Journal.

Bill Ackman plans to list Pershing Square on the public market as early as 2025 or 2026. This strategy follows a successful funding round that values the firm at approximately $10.5 billion. According to the information provided in the WSJ report, Ackman’s decision to go public is considered bold, given the historical reluctance of hedge funds to enter the public domain, especially after the financial crisis of 2008-09, which left many investors wary of the volatility and unpredictability associated with hedge fund revenues.

As a precursor to the public listing, Ackman is selling a stake in Pershing Square to investors. This funding round, expected to close in the coming days, is anticipated to significantly bolster the firm’s valuation. As per the WSj report, Pershing Square currently manages around $16.3 billion in net assets as of April’s end, which is relatively modest compared to other asset managers with similar valuations.

Pershing Square is known for its concentrated portfolio of undervalued large-company stocks, including high-profile investments in Chipotle Mexican Grill and Universal Music Group. The information in the WSJ report indicated that the firm’s valuation is further justified by its plans to attract billions more in “sticky assets” — investments that are likely to remain stable over time, reducing the risk of asset flight which is a common issue for hedge funds.

Historically, hedge funds have faced challenges in the public markets due to their unpredictable fee structures and performance. Assets under management can fluctuate dramatically, influenced by investor sentiment and market conditions. Noted in the WSJ report was that the recent market environment has also been cautious towards new issues, though there have been signs of recovery with a series of successful IPOs in the current year suggesting a potential market turnaround.

Once known for its aggressive activist campaigns and high-stakes short selling, Pershing Square is now refashioning itself into an asset manager characterized by durable capital and reduced volatility, the report in the WSJ explained. This strategic pivot is marked by a shift towards closed-end funds, a potential initial public offering (IPO), and new investment vehicles aimed at individual investors.

A key aspect of Pershing Square’s transformation has been its focus on securing durable capital. Nearly all of the firm’s capital is now invested in Pershing Square Holdings, a closed-end fund whose shares trade on European stock exchanges, the WSJ reported. This structure provides a stable capital base, mitigating the risks associated with investor redemptions that can plague traditional hedge funds. The closed-end fund format also aligns with long-term investment strategies, allowing Pershing Square to hold positions without the pressure of short-term market fluctuations.

Pershing Square’s earlier reputation was built on bruising proxy battles and activist short selling. These tactics, while sometimes highly profitable, also led to significant controversy and volatility. In recent years, Ackman has steered the firm away from these confrontational strategies. Instead, Pershing Square has focused on investing in undervalued large companies with strong growth potential, such as Chipotle Mexican Grill and Universal Music Group, as was pointed out in the WSJ report.  This shift reflects a broader trend within the firm towards stability and long-term value creation.

Ackman’s ambitions for Pershing Square include taking the firm public, a move expected to be executed by late 2025 or early 2026. As a precursor to the public listing, Pershing Square is in the process of closing a funding round that values the firm at approximately $10.5 billion. The WSJ report indicated that this pre-IPO round has raised about $1 billion, half of which will be invested in Pershing Square USA upon its launch, while the remainder will support future funds.

Pershing Square has been pioneering new types of investment vehicles to broaden its reach and appeal to individual investors. Last year, the firm received regulatory approval for a new investment vehicle designed to acquire stakes in private companies and take them public, the WSJ report observed. This innovative approach is aimed at creating significant value through strategic investments and public offerings.

Additionally, Ackman’s firm has filed a prospectus for a new closed-end fund targeted at U.S. retail investors, named Pershing Square USA. This fund is expected to generate substantial interest due to Ackman’s high-profile public persona and active engagement on social media platforms such as X (formerly known as Twitter). His strong media presence and broad retail following are anticipated to drive investor enthusiasm and support the fund’s launch.

Ackman’s use of social media has become a powerful tool in his strategic arsenal. He plans to write about new investments on X once the retail fund is approved, leveraging his substantial following to generate interest and transparency around his investment decisions, as was reported by the WSJ. Currently, he is barred from marketing his Europe-listed fund to U.S. investors, but this restriction does not apply to the new Pershing Square USA fund.

Pershing Square is also in the midst of a strategic transformation aimed at aligning itself with major asset managers such as Brookfield Asset Management and Blue Owl Capital, rather than traditional hedge funds. Pershing Square has also encouraged potential investors to compare its valuation and business model to those of Brookfield Asset Management and Blue Owl Capital, two of the largest players in the asset management industry.

With a market value of approximately $15 billion (and over $60 billion when including non-traded shares) and managing more than $925 billion in assets, Brookfield exemplifies the scale and breadth Pershing Square aspires to achieve, according to the information contained in the WSJ report. With a market value of about $28 billion and over $174 billion in assets under management, Blue Owl represents another benchmark for Pershing Square’s ambitions.

To potential investors, Pershing Square has outlined a clear path to managing considerably more assets and earning higher fees. This growth is expected to be driven by the launch of Pershing Square USA and other forthcoming funds. These new initiatives are anticipated to attract significant investor interest, leveraging Bill Ackman’s high-profile public persona and the firm’s track record.

One of the challenges Pershing Square faces in winning over new assets is the replicability of its portfolio. As of April, the firm had 10 disclosed positions. Investors attempting to replicate Pershing Square’s portfolio might miss out on gains accrued as the firm builds its positions and deploys complex hedging strategies that are not publicly disclosed, the WSJ report explained. This complexity and the unique approach taken by Pershing Square add a layer of exclusivity and potential value that investors might not be able to replicate independently.

Bill Ackman’s Pershing Square Capital Management has experienced a dynamic journey since its inception in 2004. Originally launched as an activist hedge fund, Pershing Square quickly made a name for itself with high-profile wins, notable setbacks, and a recent resurgence that has positioned it as a top performer in the investment world, as was noted in the WSJ report.

Pershing Square’s early years were marked by significant successes that cemented its reputation in the hedge fund industry. Ackman’s firm scored notable victories with investments in Wendy’s and General Growth Properties.

Ackman’s activist strategy led to substantial restructuring within the fast-food chain known as Wendy’s, unlocking shareholder value and driving significant returns for Pershing Square. The report in the WSJ also observed that the investment in the mall developer General Growth Properties was another masterstroke. Ackman’s intervention helped the company navigate through bankruptcy, ultimately leading to a profitable turnaround.

Between 2015 and 2017, Pershing Square faced a challenging period marked by high-profile losses. These setbacks were primarily due to big bets on Valeant Pharmaceuticals and a short position against Herbalife.

Ackman’s substantial investment in Valeant Pharmaceuticals turned sour as the company faced regulatory scrutiny, accounting issues, and a collapsing stock price, the WSJ report added. This episode resulted in significant losses for Pershing Square.

Ackman’s highly publicized short against the nutritional supplement company Herbalife also backfired. Despite his claims of it being a pyramid scheme, the stock price soared, leading to further losses.

Since overcoming these setbacks, Pershing Square has enjoyed a period of remarkable success, notably during the Covid-19 pandemic.

Ackman’s firm made over $5 billion in gains from hedging trades tied to the economic fallout of the pandemic, the WSJ report said. These strategic hedges showcased Ackman’s ability to navigate market volatility effectively.

As of the end of 2023, Pershing Square Holdings, the firm’s closed-end fund listed in Europe, reported a five-year average annualized return of 31.2%. This performance was about double that of the S&P 500, including dividends. Additionally, the fund gained 5.4% this year through April, after fees.

Nearly all of Pershing Square’s capital is now tied up in Pershing Square Holdings, a structure that provides stability and reduces the risk of investor redemptions.

Indicated in the WSJ report was that the firm received regulatory approval for a new type of investment vehicle designed to acquire stakes in private companies and take them public. This innovation aims to attract a broader investor base.

Ackman, the largest shareholder of Pershing Square, stands to significantly increase his net worth, estimated by Forbes at $4.3 billion, with the successful IPO of his management company. Beyond personal financial gain, the IPO could play a crucial role in retaining talent within the firm and aiding in succession planning. These factors are vital for the long-term stability and growth of the firm, ensuring that it remains competitive and attractive to top-tier investment professionals.

By positioning itself alongside asset management giants like Brookfield and Blue Owl, Pershing Square aims to highlight its potential for stable, long-term growth and substantial fee generation. This strategy is designed to attract a different class of investors who are interested in the durability and scalability of asset management firms rather than the high-risk, high-reward profile typically associated with hedge funds.

Pershing Square’s strategic pivot towards becoming a durable asset manager like Brookfield Asset Management and Blue Owl Capital represents a significant evolution in its business model. This shift aims to leverage its robust portfolio strategy, Ackman’s public influence, and innovative new funds to justify its valuation and attract substantial new investments. As Pershing Square moves towards its potential IPO, its ability to execute this strategy will be closely watched by the investment community, potentially setting a new standard for hedge funds transitioning into the asset management space.