Ackman’s Pershing Square Is Back in the Black — Thanks in Part to a Secret New Position

The hedge fund gained 2.3 percent in March.

Bloomberg / Andrew Harrer

Bloomberg / Andrew Harrer

Bill Ackman’s publicly traded Pershing Square Holdings is now up 3.7 percent for the year, after gaining 2.3 percent in March. The hedge fund weathered a volatile month marked by bank failures and more interest rate hikes that nonetheless left the S&P 500 up almost 4 percent for the month and 7 percent for the year.

One of the biggest winners for Pershing Square was a new, undisclosed position. As of March 21, that holding accounted for some 1.2 percentage points of the fund’s gross gains for the year. The total gross gain amounted to 0.6 percent, according to a letter Ackman wrote to investors in the firm’s 2022 annual report released last week.

Even bigger winners were Chipotle Mexican Grill, accounting for 2.3 percentage points of the gross gain, followed by Hilton Worldwide Holdings at 1.3 percentage points.

The biggest loser was Pershing Square’s interest rate swaption. The trade had cost the hedge fund 3.2 percentage points this year as of March 21, as turmoil in the banking sector surrounding three regional bank failures led market interest rates to fall despite the Federal Reserve’s continued effort to jack them higher. (Ackman had called for the Fed to pause rate hikes ahead of its March 22 meeting, but the central bank did not do so, instead hiking rates by 25 basis points.)

Even though lower interest rates would cause Pershing Square to lose money on the swaption, the likely gains in the stock prices of the companies it owns could more than make up for those losses.

The first quarter loss on the interest rate bet was a contrast to 2022, when the hedge added 14.3 percentage points of gross return to a Pershing Square portfolio that nonetheless ended down a 8.8 percent, net of fees.

As Ackman explained in the letter, “These hedging gains, combined with our Covid-19 CDS hedges in February 2020, have been a highly material contributor over the last three years as they have generated approximately $5.3 billion in total hedging proceeds to date versus a cost of $446 million.”

In his letter to investors, Ackman disclosed that he still has not given up on his SPARC, which stands for special purpose acquisition rights company — a vehicle that he argues is more investor-friendly than a SPAC, a special purpose acquisition company. But SPARC still hasn’t gotten the approval of the Securities and Exchange Commission.

“On March 24th, we filed another, hopefully near-final, amendment to SPARC’s registration statement that we hope should address the minimal remaining comments that we have received from the SEC,” he wrote investors in his annual letter.

Pershing Square has made seven filings to the SEC regarding his proposed SPARC, including six amendments in addition to the original filing.

As Ackman reminded investors, his pitch is that “SPARC is an acquisition company, but without the drawbacks of conventional SPACs. Among other beneficial features, investors in SPARC do not need to invest any capital until we have identified a transaction, completed our due diligence, entered into a definitive agreement, had the transaction’s registration statement declared effective by the SEC, and obtained other required regulatory approvals.”

Then, once the transaction is ready to close, SPARC rights holders have 20 business days to decide whether to exercise their rights or sell them in the market, he said.

Ackman said he expected “the phone will start ringing shortly” at Pershing Square after the SEC approves the SPARC.

“In today’s extremely challenging equity capital markets environment, where few if any IPOs can be completed, SPARC’s ability to offer substantial transaction certainty, including a fixed transaction price and a guaranteed minimum amount of capital (the amount committed by the sponsor) raised in a public offering, will make SPARC a highly attractive counterparty for private companies seeking to raise capital and go public,” Ackman predicted.

Pershing Square has spent almost $4 million, in legal and organizational fees, in its effort to get the SPARC approved.

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