(Bloomberg) — Bill Ackman’s new $5 billion exchange-traded fund and his asset management company saw a rebound in their shares the day after their IPO. This happened after Ackman disclosed he invested more of his own finances into the deal.
Ackman mentioned on the X platform early Thursday that he purchased 500,000 shares of the closed-end fund Pershing Square USA Inc. and 800,000 shares of the management firm Pershing Square Inc.
On Thursday, the stock for Pershing Square increased nearly 16% to $28, while Pershing Square USA saw a rise of 1.8% to $42.71. A Bloomberg calculation suggests that an investor who acquired five shares during the IPO would still be down about 3%, especially after accounting for shares issued to the management entity.
Mr. Ackman’s purchasing action, revealed before the start of regular trading, came with assertions that the stock was undervalued. He pointed out that the closed-end fund was trading significantly below its cash valuation of $49 per share and noted that the management company’s shares were under the $26.25 mark, which is the price at which he divested a 10% interest to a strategic investor in 2024.
At that time, Pershing Square held about half of the fee-generating assets in its portfolio.
This development follows a listing that attracted less capital than the $10 billion Ackman had aimed for—the $5 billion was the minimum required to satisfy early investors involved in the $2.8 billion private placement. It also fell short of the $25 billion target Pershing Square was looking to accumulate around two years back.
Craig Stevens, founder of the IPO-focused platform Access, commented that the product lacked the scarcity usually needed to spark significant investor interest during IPOs.
“If there’s no scarcity, investors won’t be interested, and that will drive prices up,” Stevens stated.
Essentially, Ackman and his affiliates increased their contribution to $200 million from an earlier $100 million. This adjustment elevated the final size of the offering to nearly $3 billion, based on a Thursday filing with the U.S. Securities and Exchange Commission.
The banks involved in this initiative split a total of $45.3 million in fees, as per their filings.
Permanent concentration of capital
Mr. Ackman gained recognition as an activist investor through successful ventures with companies like Canadian Pacific and General Growth. However, after facing challenging investment outcomes and dealing with redemptions, he shifted his strategy toward maintaining permanent capital. His funds experienced notable losses from high-profile investments such as Valeant Pharmaceuticals and Herbalife between 2015 and 2017.
Jack Shannon, principal of equity strategies at Morningstar, noted that closed-end funds are appealing to asset managers because they provide a quasi-permanent pool of assets for fee collection and alleviate concerns about outflows.
Yet, ongoing trading discounts compared to underlying assets have dampened their appeal. These discounts complicate efforts for promoters to gather more capital.
“You’re sacrificing the ease of raising additional funding,” Shannon emphasized.
To tackle the lukewarm response from investors, Pershing Square USA implemented a structure devoid of performance fees. Additionally, IPO participants received a free share in management company Pershing Square Inc. for every five shares they acquired. The increase in stock prices on Thursday helped bring IPO investors’ investments back to approximately even across both stocks.
The filing for Pershing Square USA specifically indicated that its structure avoids various marketing restrictions, ownership constraints, and unfavorable tax implications for U.S. investors, which had contributed to the significant discount on London-listed Pershing Square Holdings. Still, it advised investors that its stock could trade below its value.
Ackman’s European closed-end fund, which began trading in 2014 and does charge performance fees, had $15 billion in assets under management by December 31, an increase from $6.2 billion in 2014. Nonetheless, this fund is currently trading at over 30% below its net worth, based on Bloomberg data.
Shannon mentioned that the challenge of reducing the discount on Pershing Square USA’s net asset value is further complicated by its insufficient dividend yield to attract traditional closed-end investors.
“Instead, prices largely depend on sentiment, which is quite hard to gauge,” he said.
Mr. Ackman, along with Chief Investment Officer Ryan Israel, plans to field questions from investors about X on Friday, according to Ackman.
–With assistance from Bailey Lipschultz.
(Updates deal in first three paragraphs.)
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