The Pershing Square founder is launching a brand-new investment fund.
Billionaire investor Bill Ackman is planning to create a new publicly traded investment fund and is kicking off a pre-IPO roadshow to build investor interest. The new fund will be called Pershing Square USA and will list on the New York Stock Exchange under the ticker symbol PSUS.
According to regulatory filings, we know that the IPO price of the fund will be $50 per share. Investors will be required to purchase a minimum of 100 shares, so there will effectively be a $5,000 minimum initial investment.
What we know about Pershing Square USA
This will be a unique investment vehicle. It’s important to note that this is not an IPO of Bill Ackman’s well-known Pershing Square hedge fund, which owns stakes in companies such as Alphabet (GOOGL -0.27%) (GOOG -0.28%) and Chipotle (CMG 0.21%). Rather, Pershing Square USA will be a new closed-end fund.
It’s worth noting, however, that the existing Pershing Square Holdings (PSHZ.F -0.10%), which has $15 billion in assets under management, is already listed on several foreign exchanges and is available as an over-the-counter stock.
Pershing Square USA will have no assets to start, other than a relatively small amount of cash on hand that will cover the investment banking expenses related to the IPO itself.
We also know that the fund would charge a 2% annual management fee, which would be higher than most actively managed mutual funds and ETFs charge but is significantly less than the performance-based fee that hedge funds typically charge on top of their management fee. But the fee will be waived for the first 12 months after the IPO. The idea is that the fund will essentially be a publicly traded hedge fund, but with lower fees and quicker access to capital. Plus, unlike hedge funds, Pershing Square USA will be available to all investors, not just those who meet the definition of an accredited investor.
Pershing Square USA’s investment strategy
First off, Ackman is one of the most respected investors in the world for a reason. Even including a steep hedge fund fee structure, the existing Pershing Square hedge fund has generated a 2,116% total return (about 16.5% annualized) since its Jan 2004 inception. If it had been using the flat-rate 2% management fee structure, its cumulative return would be over 3,500% (19.4% annualized).
With the new Pershing Square USA fund, Ackman plans to stick to Pershing Square’s time-tested investment principles, focusing on businesses that have these characteristics:
- Predictable free cash flow generation
- High barriers to entry
- Strong balance sheets
- Attractive valuations
- Large market capitalizations
- Great management teams
- Low dependence on capital markets
In Pershing’s IPO Roadshow presentation, Ackman and his team say that they aim to identify investments with asymmetric payoff structures, meaning the potential to earn large multiples of cost basis with limited downside risk.
Specifically, Ackman aims to build a concentrated portfolio of 12 to 15 stock holdings, all of which are publicly traded large caps. This is consistent with Pershing Square’s current strategy. In its massive portfolio, Pershing only owns seven different stocks today.
Ackman believes this approach allows for certain competitive advantages, such as the ability to influence change at its target companies, like an activist investor.
Although this is a brand-new fund, Pershing Square is investing $500 million of the firm’s own capital alongside investors and is committing to a minimum 10-year holding period. It will pass through profits to investors, and therefore will avoid corporate-level taxation.
When will the Pershing Square USA IPO happen?
The exact timing of the IPO is unclear at this point. However, we know the pre-IPO roadshow just started. For context, recent IPO Reddit started its roadshow on March 7 and went public two weeks later. So, it could potentially happen before the end of July.
And it’s also unclear just how large this IPO would be. In the fund’s prospectus, several examples are mentioned with figures based on a $10 billion total initial offering, although other (higher) figures are also mentioned throughout. However, the actual total will depend on investor interest and it could potentially be the largest closed-end fund ever established in the United States.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
