There are already signs the expectations are being pared back: Ackman
has since told investors that the deal would now be capped at $10
billion, and some people familiar with the matter say raising even
that might be difficult. (Other people close to the IPO said the
strategy was always to set big expectations and then go smaller to
create the feeling of scarcity.)
Early Thursday morning, a
regulatory filing revealed that Ackman had sent a letter to
shareholders in his hedge-fund firm requesting their participation in
the offering and acknowledging other potential IPO investors’
concerns.
He asked that the shareholders, a mix of institutions and
high-net-worth individuals, participate in the IPO “the sooner the
better” to “improve the strength.” He suggested the IPO was on track
to raise around $2.5 billion to $4 billion so far.
The filing said Ackman sent the letter under the impression it
wouldn’t need to be publicly disclosed. It also named some investors
who had signed onto the IPO including hedge-fund Baupost Group, which
isn’t typical during an IPO.
It is unclear if the gaffe could delay the IPO, which was originally
set to begin trading early next week.
One of the challenges Ackman acknowledges is the need to generate
enthusiasm for his fund’s closed-end structure, which has fallen
out of favor with investors. Similar funds—including one Ackman
listed a decade ago in Europe—trade at a discount to the net value of
their holdings.
Ackman is also marketing the fund to mutual-fund managers, who
regularly invest in IPOs of operating companies but tend to be
skeptical of stock-picking funds or restricted from owning them.
After rising to fame as an activist investor, Ackman has remade
himself into a social crusader who broadcasts his thoughts on the
presidential election, campus protests and more to his nearly 1.4
million followers on X, Elon
Musk’s social-media platform. He has posted over 500 times in the
past month alone, including to question whether President
Biden was severely ill after Biden withdrew from the race via
social media.
“He’s got a cult following,” said Erik Herzfeld, who is president of
boutique investment firm Thomas J. Herzfeld Advisors and was pitched
on the new fund but isn’t buying into the IPO. “If he comes up with a
$5 billion or $10 billion launch, I think that’s still very
successful”
Big ideas
Ackman has a history of pushing the envelope with novel investment
ideas and endeavors, not all of which go according to plan.
In 2020, he raised $4 billion in what was the largest-ever IPO for a
special-purpose acquisition company. He first missed
his own timetable for announcing a deal, then failed
to consummate a transaction with his chosen target, Universal
Music Group, because of concerns with the
deal’s structure and complexity.
Ackman’s fund took a large stake in Universal instead. The value of
that stake declined by over $1 billion on Thursday after the record
label reported lackluster streaming
revenue growth.
Last fall, Ackman got regulators’ blessing for a new investment
vehicle, a special-purpose
acquisition rights company, a spin on a SPAC where Ackman presents
investors with a deal to bring a company to the public markets and
gives them the chance to buy in.
Potential targets included mature companies owned by private-equity
firms looking to cash out, a category that has grown with IPO markets
being largely shut. He also said he would consider a deal for X,
previously known as Twitter. About 10 months later, Ackman has yet to
announce a SPARC deal.
X headquarters in San Francisco. Ackman last year said he
would consider a transaction with X. PHOTO: JOHN G.
MABANGLO/SHUTTERSTOCK |
Ackman has outlined initiatives on X to tackle social problems he
identified, including efforts to research vaccine efficacy and use
artificial intelligence to search for plagiarism in the work of
faculty and leadership at elite universities. It isn’t clear where
those plans stand and Ackman hasn’t provided public updates.
But Ackman has pulled off the implausible before, and bold moves have
helped him amass his fortune, which Forbes estimates to be worth more
than $9 billion. After losing billions when big bets on drugmaker Valeant
Pharmaceuticals and supplement-maker Herbalife went
against him, Ackman course-corrected
and revived his firm.
The five-year annualized return at his main fund as of the end of 2023
was 31.2%, thanks in part to more than $5 billion in gains
from hedging trades during the Covid-19 pandemic. That is about
double the comparable return of the S&P 500, including dividends, over
that time frame.
As soon as next year, Ackman wants to take
public his own firm, Pershing Square, a rarity for hedge funds.
Ackman recently sold a stake in the firm that valued it at about $10.5
billion. Proceeds from the sale gave him $500 million to invest in
Pershing Square USA and about $500 million more to invest in
additional funds he plans to launch.
‘Star power’
Pershing Square USA’s closed-end structure means it will sell a fixed
number of shares in a public offering. Investors can exit only by
selling shares to other investors at their price on the open market,
regardless of the value of the fund’s investments.
The new fund will largely mirror his main stock-picking fund, which
invests in companies like Chipotle Mexican Grill and Hilton Worldwide
Holdings and occasionally adds macroeconomic hedges with potentially
big payoffs. Pershing Square USA will charge investors no management
fee its first year and 2% thereafter.
Closed-end funds have been on the decline for years. Those focused on
stocks raised just $5 billion collectively from IPOs in the three
years ended June 30, according to Morningstar.
The discount at which many closed-end funds trade has prompted
activist investors to push for liquidations or changes.
A closed-end fund Ackman listed in Europe in 2014, Pershing Square
Holdings, traded at a roughly 20% discount to its net asset value
earlier this week.
When the fund launched, Ackman expected it eventually to trade at
premium. He urged investors to compare it to publicly listed
investment or operating companies that are more richly valued.
Ackman is making a similar pitch today with Pershing Square USA.
Investors “should not think about us like a closed-end fund,” he said
in the video.
A key reason Ackman is raising Pershing Square USA is that he is
restricted from marketing the European fund to U.S. investors or on
social media. That will change with Pershing Square USA.
“He’s going to rely on the star power driving that premium,” said
Jason Kephart, director of multiasset ratings at Morningstar.
Write to Peter Rudegeair at peter.rudegeair@wsj.com and
Corrie Driebusch at corrie.driebusch@wsj.com
Corrections & Amplifications
A closed-end fund Ackman listed in Europe in 2014, Pershing Square
Holdings, traded at a roughly 20% discount to its net asset value
earlier this week. An earlier version of this article incorrectly said
that discount had widened to closer to 30% on Thursday following a
selloff in PSH shares. (Corrected on July 25)
