It’s not every day that a company asks shareholders to disavow any comment made by its parent company’s largest shareholder and its chief executive. But that’s exactly what Pershing Square USA Ltd. did on Thursday when it blamed Wall Street speculator Bill Ackman.
In a letter marketing his new closed-end active hedge fund to investors, Ackman downplayed the risks printed in black and white in his speech. Regulatory Bulletin Ahead of the planned initial public offering of shares under the symbol PSUS.
“The company specifically disavows the statements made by Mr. Ackman,” it urged in a statement. Regulatory Deposit To the Securities and Exchange Commission. “You should not consider the statements contained in the attached statement as Appendix A in making your investment decision.”
The 58-year-old is best known for his visionary bet against failed bond insurer MBIA during the subprime mortgage crisis as well as his battle with billionaires over Herbalife — which he eventually lost to rival Carl Icahn. At PSUS, Ackman hoped to leverage his 1.3 million social media followers, where he pushed a deeply conservative agenda, to create the largest publicly traded closed-end investment firm with $25 billion in assets.
What wasn’t Ackman supposed to say?
The regulatory filing for his new fund specifically referenced an update Ackman sent to fellow co-owners of Pershing Square Holdings on Wednesday. In the update, he detailed some of the strategic decisions he made after the investor rounds that would directly impact the upcoming initial public offering of the new fund, which he was marketing exclusively to U.S. investors.
Ackman claimed, among other things, that PSUS could achieve what he believed was a “sustainable premium” to its net asset value — a completely unacceptable claim given that it had warned potential investors going into the IPO that funds like its “often trade at a discount to their net asset value.”
He also downplayed concerns that his team running the fund has a shallow bench, and is in fact made up mainly of him and 39-year-old chief investment officer Ryan Israel.
But the U.S. Student Union warned that a potential loss for Ackman — for whatever reason — could have a “material adverse impact” on his financial performance and trading price. It also corrected other comments Ackman had made that were inconsistent with previous statements approved by regulators.
“Mr. Ackman sent it as an internal communication to investors in Pershing Square Holdco, and therefore did not believe it required public disclosure.”
Where is PSUS located in the Pershing Square empire founded by Ackman?
Somewhat confusingly, shares in PSUS do not confer ownership in Ackman’s highly successful hedge fund Pershing Square, LP, nor even in its European-listed fund Pershing Square Holdings, Ltd.
PSUS is a new, fully segregated, active hedge fund that operates similarly to a real estate investment trust (REIT). It is structured so that it is not subject to corporate tax, with at least 90% of its income distributed to its shareholders each year.
Investment decisions will be made by an eight-person team that works with Ackman at Pershing Square Capital Management, which oversees $19 billion in assets, including $4.2 billion of Ackman & Co.’s own money.
Unlike most actively managed funds that only update their investors on a monthly or quarterly basis, Ackman said PSUS will seek to be more transparent than its peers by publishing a weekly list of its net asset value.
To ensure that interests are aligned with shareholders, Ackman’s PSCM plans to invest $500 million in the fund, which will be locked in for 10 years.
Some good old fashioned FOMO
Looking at the prospectus, Ackman isn’t looking for just one target, but dozens. He aims to focus his fund’s strength on 12 to 15 different companies with strong balance sheets and huge strategic moats that protect them from competitors.
These investments must be attractively valued and largely unaffected by the environment in which they operate – including, but not limited to, underlying macroeconomic conditions, interest rate volatility, commodity prices, and regulatory risks.
Despite the massive amount of research needed to identify these rare opportunities, Ackman said he will not charge any performance fees at all for his services. Such fees can typically be 15% to 30% of a hedge fund’s annual gains, whether realized or unrealized, significantly reducing investor returns. Only a 2% management fee will be charged, which he will waive for the first 12 months.
However, the stadium so far seems to be getting no attention. Important houses such as Capital Group Mutual fund companies have already declined to subscribe and it appears Ackman will miss his $25 billion target. In the letter, he said he may only receive enough orders to buy $2.5 billion to $4 billion worth of shares.
Ackman told his co-owners he was going to stir the waters a little bit to create a kind of fear of missing out.
“The typical approach is to show a small trade size to make market participants worry that they might miss out on the trade if they don’t place their order quickly,” he wrote.
That’s why his SPAC, Pershing Square Tontine, initially only officially opened its books to raise $1 billion in orders for shares, before eventually raising $4 billion by the time it listed in July 2020. (It failed to find a company looking to float and returned the money to investors two years later.)
Here too, the PSUS attorney had a message for potential investors that roughly translates to: He forgot he said that before.Meanwhile, Ackman’s own account on X has been unusually silent.