T.S. Eliot wrote that “April is the cruelest month” — and that certainly held true this year for Bill Ackman’s Pershing Square Holdings.
The publicly-traded hedge fund lost 8.1 percent for the month, with half of that coming from its untimely $1.1 billion position in video streaming pioneer Netflix. The decline made up the bulk of a 9.6 percent loss so far this year.
Last month, Pershing Square dumped its entire position in Netflix after a dour earnings announcement pummeled the stock. The sale came only a few months after Pershing Square took its stake in January, when the stock slumped.
Pershing Square lost about $400 million on the investment, which Ackman told investors would amount to 4 percentage points of loss for the hedge fund.
Ackman’s career has been marked by both incredible highs and gut-wrenching lows. During the Covid-19 crisis of 2020, he made $2.6 billion on a Covid short bet on CDS indexes. This year, losses have been cushioned by savvy interest rate shorts he placed last year.
At the other end of the spectrum, Ackman has previously been hurt by holding onto losing positions for far too long. For example, it took two years for him to finally exit his disastrous position in Valeant Pharmaceuticals in 2017 with a loss of more than $4 billion.
The Netflix sale shows that he appears to have learned a valuable lesson from the Valeant beating.
“While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty,” Ackman wrote in a letter to Pershing Square Holding investors following the sale. “One of our learnings from past mistakes is to act promptly when we discover new information about an investment that is inconsistent with our original thesis. That is why we did so here.”
The poor start to 2022 is in contrast to the past three years, when Ackman came roaring back from his earlier losses with double-digit gains in 2019, 2020 and 2021.
Pershing Square takes big, concentrated stakes in large-cap companies, and with the exception of hotelier Hilton Worldwide Holdings, all of his stocks fell during last month’s stock market rout. Even so, Ackman’s publicly traded hedge fund has still managed to outdo the broader market this year. Through April, the S&P 500 index was down 13.3 percent for the year.
But swooning stocks weren’t Ackman's only problem. The hedge fund manager suffered another blow last month when a planned New York Stock Exchange listing of warrants on an affiliate of his special purpose acquisition company, Pershing Square Tontine Holdings, was pulled by the exchange. The listing would have required a rule change that had to be approved by the Securities and Exchange Commission, which has been dragging its feet over the proposal.
Ackman had planned for SPARC Holdings to issue warrants on SPARs to investors in Tontine, if he decides to liquidate it. He argued that the SPARC — which stands for special purpose acquisition rights company — was an improvement over a SPAC because investors would not have to put in any money up front.
Tontine has until late July to come to an agreement with a potential merger partner before its 24-month time frame is up and it will have to return cash to shareholders. If that happens, Ackman still plans to offer those investors SPAR warrants along with their cash, but the warrants will trade over the counter instead of on the NYSE for the time being.
Apparently the SEC has its hands full with its new SPAC rules and doesn’t want to deal with SPARC now.
“In view of the Securities and Exchange Commission’s recently proposed rule changes and policy guidance with respect to special purpose acquisition vehicles, we understand that the approval of the NYSE rule change as currently proposed would not likely have occurred at this time,” SPARC said in a statement on April 28. “By withdrawing the proposed rule, the NYSE preserves the ability for the approval of a revised rule once the new SPAC rules have been finalized.”