Bill Ackman has been on a tear this year.
He is prepping a new closed-end fund for U.S. retail investors and has sold a 10 percent stake in his management company, Pershing Square Capital, in a deal valuing the company at more than $10 billion.
That’s not all. After years of haggling with the Securities and Exchange Commission, Ackman finally got approval for a newfangled special purpose acquisition rights company, called a SPARC, and is looking for a company to partner with.
But there’s one important thing the hedge fund manager hasn’t done this year: Beat the market. And for a fund that typically invests in fewer than a dozen stocks, and hasn’t shorted any since the Herbalife disaster, beating the market is Ackman’s raison d’etre.
As of the end of June, Pershing Square Holdings, Ackman’s publicly traded hedge fund, was up 5.7 percent net for the year, according to its report to investors. That’s a little more than a third of the S&P 500 Index total return of more than 15 percent, including reinvested dividends. Pershing Square Holdings fell 1.5 percent in June and ended the quarter down 1.1 percent. Meanwhile, the S&P 500 hit all-time highs during the month.
At first glance, Ackman’s hedge fund performance is perplexing because some of Pershing Square’s best-known stocks are up by double-digit amounts. During the first six months, Chipotle Mexican Grill gained about 28 percent, and Alphabet, the parent of Google, jumped 30 percent, and is one of six tech stocks driving much of the market’s surge. Hilton Worldwide Holdings gained about 20 percent while Universal Music Group, Pershing Square’s largest position, was up about 8 percent.
The biggest loser was Ackman’s longtime investment in Howard Hughes Holdings, which fell 24 percent. Ackman recently gave up his position as chairman of the board of the company, which Pershing Square controls with a nearly 40 percent ownership. The other big loser was Restaurant Brands, which was down about 10 percent. Canadian Pacific was off under 1 percent.
Ackman seldom trades his portfolio, often holding onto stocks for years. In 2024 the biggest changes in the portfolio during the first quarter that he made were shedding 10 percent of Chipotle and dumping his entire stake in Lowe’s Companies, which the fund had first bought in 2018.
During the second quarter, Pershing Square had added two new positions, but they haven’t been disclosed, Ackman told investors in a June call. Since he no longer takes activist positions that often require timely disclosure, those names won’t likely be known until August 15, when hedge funds make their quarterly filings with the SEC that show the publicly traded equities held at the end of the prior quarter.
One big negative impact on the portfolio this year is Pershing Square’s bet that interest rates would decline, which it expected to happen based on the view that the economy would weaken. “We were starting to see some indicia that the economy was starting to slow down. Inflation had gotten back very close to target towards the end of year and we thought that there was a risk that needed to be hedged,” Ryan Israel, Pershing Square’s chief investment officer, said during the recent investor call, explaining the fund’s bet.
“That has lost a lot of value this year,” he admitted.
Although Pershing Square has not released year-to-date numbers on the performance of its interest rate swaptions, earlier in the year it reported that they were responsible for the biggest losses in the portfolio, accounting for a loss of 1.7 percentage points in a portfolio that had a gross return of 6.2 percent through March 19.
This year’s lackluster performance might encourage investors to sell out of Pershing Square Holdings, which trades in London and Amsterdam (and over the counter in the U.S.), and move those assets into the U.S. closed-end fund he is launching. That fund is expected to hold the same positions and will trade on the New York Stock Exchange. The U.S. fund will not charge a performance fee, which is 16 percent at Pershing Square Holdings, and its 2 percent management fee will be waived for the first year. After that time, 20 percent of the management fee will be used to reduce the performance fees at the European hedge fund in an effort to boost its returns to investors, according to Pershing Square.
Ackman did not return a request for comment.