Pershing Square: Ack is back
Bill Ackman’s stock picks are working. But investors stay away from his own stock
Bill Ackman must be happier than has been in ages. He recently remarried and has a child on the way (events commemorated in no less than the Sunday Styles section of the New York Times). And after several rough years for his hedge fund, Pershing Square, it has rallied sharply. So far in 2019 it is up 25 per cent, well ahead of the S&P 500. In 2018, Mr Ackman simplified his investing operation including sharply reducing his staff. But while returns are up, investors still have concerns about his publicly listed vehicle, Pershing Square Holdings. Its discount to net asset value stubbornly remains at 27 per cent. That fulfilment still eludes Mr Ackman.
One argument mounted by critics of Mr Ackman against his fund is that he is merely buying large-cap public equities that any investor can purchase from an online broker. His counterargument is that his stockpicking skills are unique and that by making large, concentrated bets he can lobby management for change. Whether explained by mean reversion or acumen, Mr Ackman’s picks like United Technologies, Restaurant Brands, ADP and Chipotle have returned between 14 and 40 per cent so far this year.
Ironically, Pershing Square’s biggest gains on a percentage basis have come from a regulatory bet. Mr Ackman, along with other high-profile hedge funders, have speculated in the common and preferred securities of Fannie Mae and Freddie Mac, the mortgage guarantors seized by the federal government during the financial crisis. The Trump administration is signalling that Fannie and Freddie may be privatised sending their securities prices soaring. Pershing’s stakes in Fannie and Freddie are up between 35 and 140 per cent this year.
Mr Ackman says if you are unimpressed with his stock picks, then think of Pershing Square Holdings as a way to buy his stocks cheaply because of the embedded NAV discount. That is reasonable if an investor believes that discount will narrow. Pershing Square Holdings said this week it would begin paying a dividend in line with the S&P 500 yield to attract a new shareholder base. It has also spent more than $500m buying back its shares to close the valuation gap. These discounts are obviously irritating to Mr Ackman but not unusual for such investment vehicles. Sustained, strong investment returns offer the best antidote. A happy marriage takes years of steady effort.