This content is from: Portfolio

Ackman Endures a Brutal September

The Pershing Square hedge fund CEO has floated a provocative solution for the fund’s ailing stock price.

Bill Ackman’s Pershing Square Holdings hedge fund fell 4.5 percent during a brutal September, when the overall market was down a stunning 9 percent. 

Losses have plagued the hedge fund this year, and it is now down 19.9 percent for the first nine months — an improvement from the end of June, when it was down 26 percent.

Most of the stocks in the fund’s highly concentrated portfolio traded in line with the market last month. Its two biggest positions — Lowe’s Companies and Chipotle Mexican Grill — were down 10 percent and 7 percent, respectively. The fund’s losses have been tempered by an interest rate hedge, which Ackman put on last year, believing that interest rates were set to rise.

Last fall, Ackman called for the Federal Reserve to raise rates aggressively to counter the inflationary tendencies that were building. But after the Fed made three consecutive 75 basis point hikes — with the suggestion that it will continue on that path — stocks went into a tailspin, while inflation remains stubbornly high.

Now Ackman is calling raising interest rates a “very blunt tool” and proposing another inflation-fighting weapon: loosening immigration standards to bring more workers to the U.S. “Doesn’t it make more sense to moderate wage inflation with increased immigration than by raising rates, destroying demand, putting people out of work, and causing a recession?” he tweeted last month.

Specifically, Ackman suggested targeting Russians who want to escape Putin’s rule.  

“And if we can target immigration policy to achieve important political objectives like catalyzing a Russian talent drain to the U.S., why shouldn’t we?” he asked via Twitter. (In recent months, most of Ackman’s tweets have been about Ukrainian successes on the battlefield, as he has been vociferous in supporting Ukraine ever since the war began in February.)

Meanwhile, Ackman’s publicly traded hedge fund is not only in the red, it’s trading at a massive discount to net asset value — some 35 percent.

The stock price discount is something Ackman has tried to narrow for years. But despite substantial stock buybacks, a new dividend policy, and insider ownership of 25.5 percent of the fund, he hasn’t cracked the problem. In fact, as he said in a recent letter to shareholders, the discount has widened over time.

Ackman noted that one issue facing Pershing Square Holdings is that U.S. regulations regarding hedge funds forbid Pershing Square from trading on a U.S. exchange. That has limited its appeal to U.S. investors, who are its more natural owners. (Pershing Square Holdings trades over the counter in the U.S.)

He suggested a provocative solution: “One can envision a world in which over time PSH [Pershing Square Holdings] becomes a controlling owner of one of more businesses that comprise the substantial majority of our assets and income,” he said in the letter to shareholders. “We expect to continually evaluate PSH and its operations, and consider whether in the future it may be able to operate not as an investment company in the U.S., but rather as an operating company that could be listed in the U.S.”

Related Content