By Louis Goss
Bill Ackman’s newly-formed investment fund, Pershing Square USA, has promised potential investors that it won’t charge performance fees on gains from its investment portfolio.
The closed-end fund plans to list its shares for $50 each on the New York Stock Exchange, with a view to raising capital that will then be invested in a portfolio of 12-15 “large-capitalization… North American, durable growth companies,” according to an IPO prospectus that published on Friday.
Investors will be required to make a minimum investment of $5,000, purchasing at least 100 shares, in order to participate in Pershing Square USA’s public float, the prospectus said.
The fund will not be subject to any performance fees and will instead only charge a flat management fee, equivalent to 2% of the value of the investment fund’s assets, which will be “irrevocably waived” for the first 12 months after the float.
Ackman’s new fund is expected to launch its IPO in either 2025 or 2026, when it will list on the New York stock Exchange under the ticker “PSUS.” The billionaire hedge fund manager will act as Pershing Square USA’s CEO.
Hedge funds have traditionally used a”‘two and twenty” structure, which sees them charge fees equivalent to 2% of the value of their clients’ assets, alongside 20% fees on any profits they generate beyond certain predefined benchmarks.
Alfred Winslow Jones, who is widely regarded as the “father of the hedge fund industry,” is credited as having invented that model, taking inspiration from Phoenecian sea captains who claimed a fifth of any profits generated from successful voyages.
Pershing Square USA’s launch is expected to mirror that of Pershing Square Holdings, the Guernsey headquartered closed-end fund that was started by Ackman in 2012 and listed on the London Stock Exchange in 2017.
In a regulatory filing in February, Pershing Square Holdings UK:PSH said it would be lowering its own annual performance fees from rates of 16%.
“We believe that the reduction in performance fees will enable [Pershing Square Holdings] to generate higher long-term returns for its shareholders,” Pershing Square Holdings’ chair, Anne Farlow, said in a statement at the time.
Bruno Schneller, managing partner at Erlen Capital Management, said Pershing Square USA’s decision not to charge performance fees sits in line with “broader trends where funds aim to align more closely with investor interests, especially in a competitive landscape.”
“It’s a bold move that signals confidence in their long-term strategy and performance capabilities,” Schneller said. “It might indeed set a precedent as funds continue to innovate in how they structure fees to attract and retain savvy investors.”
Hedge funds have increasingly moved away from the “two and twenty” model, according to data from the Alternative Investment Management Association, which shows that in 2022 performance fees averaged 17.31% and management fees averaged 1.39%.
In June, a consortium of 29 institutional investors called on hedge funds to lower their performance fees as they argued the current high interest rate environment has let hedge funds collect “significant” fees on “skills-less returns.”
-Louis Goss
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07-01-24 0537ET
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