Investor Bill Ackman is lagging behind the
S&P 500
this year by about 10 percentage points as he prepares to sell a new closed-end equity fund, Pershing Square USA, that could total $25 billion.
The investor roadshow for the new fund, which will trade under the ticker PSUS, began Tuesday, and the deal is expected to be priced at $50 per share in early July.
Ackman is using his star power—he has more than 1 million followers on X—and strong five-year returns to sell what will be the largest U.S. closed-end fund ever. This year hasn’t been great, though, as he has very limited exposure to the Magnificent Seven stocks that have powered the stock market. Alphabet is his only holding of the seven.
Ackman’s primary current investment vehicle,
Pershing Square Holdings,
a European-listed closed-end fund with a market value of about $10 billion, rose 5.7% through June 30 on a net asset value (NAV) basis, according to the fund’s website. That’s behind a 15.2% total return for the S&P 500 index. The fund typically reports its returns weekly.
Ackman, head of Pershing Square Capital Management, is believed to be looking to raise $25 billion for Pershing Square USA, but he has not yet set an official target.
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He faces a number of obstacles, particularly in a moribund closed market that has seen virtually no issuance since 2022. Ackman’s fund would be by far the largest fund in the U.S. closed market, where the current largest fund is about $5 billion.
The best gauge of Ackman’s performance is Pershing Square Holdings, whose shares trade in
London
(PSH.UK) and beyond
Euronext
(PSH.Nederland) and also over the counter under the ticker PSHZF.
The fund’s shares, which rose 1% to $53.73 on Tuesday, had risen 14% through the middle of the year, outperforming the performance of the underlying portfolio as the discount to the value of its assets narrowed to 23% from 29% this year.
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The fund’s shares have returned 26.5% annually over the five years through June, far outpacing the S&P 500’s 15% annual return over that period. But the stock has still lagged the S&P 500 over the longer term, since the fund went public in 2014 at $25 a share. Since then, the fund has returned 9% annually based on share price through June, behind the S&P 500’s 13.5% annual return.
The fund’s performance over the past 10 years has been better on a NAV basis, around 12% per year, but still lags the S&P 500. The difference between the fund’s holdings and the fund’s NAV performance reflects the discount of the holdings relative to NAV. Ackman’s 10-year returns are dampened by a rough run from 2015 to 2017, when he significantly underperformed the market.
Closed-end funds issue a fixed number of shares and can trade at a premium or discount to their asset value based on investment demand. Most U.S. closed-end funds trade at discounts, as do those in Europe.
Pershing Square Holdings has a concentrated portfolio of stocks that includes Chipotle Mexican Grill
,
Hilton Worldwide
,
Alphabet, Howard Hughes Holdings
,
and Restaurant Brands International
.
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Of these investments, Alphabet, Hilton and Chipotle are outperforming this year, while Restaurant Brands and Howard Hughes are in the red.
Ackman, like many active managers, hasn’t had enough exposure to the Magnificent Seven stock. Based on March 31 filings, he doesn’t own Nvidia at least
,
Amazon.nl
,
and Microsoft
,
who have led the market this year.
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The new closed-end equity fund will invest primarily in “12 to 20 core long-term investments in North American sustainable growth companies with large market capitalization, investment grade, free cash flow generating characteristics,” according to the prospectus.
Ackman could also make macro bets, like the one he made against corporate bonds in 2020, which proved a big success for Pershing Square during the pandemic sell-off.
Ackman faces a number of challenges in selling Pershing Square USA. Investors can buy his European closed-end fund at a recent 23% discount to NAV, though that fund has some complicated tax implications. The new fund will carry a hefty 2% annual fee, double that of most actively managed equity funds. (Ackman is waiving that fee for the first year.) Then there’s the tendency for closed-end funds to trade at a discount to NAV, which has made it nearly impossible to sell a new fund.
But Ackman is confident and hopes to pull off the largest U.S. closed-end fund ever, and one of the largest IPOs and fund offerings in recent years.
Write to Andrew Bary at [email protected]