Ego as a catalyst: why I see value being outed in this investment company
For MOGULS by The Investor
on May 25, 2023
The effortless way to beat the market is to pay someone to do it for you. Especially if you enjoy sleeping in, tap dancing, bingeing Netflix, golf, time-consuming love affairs, or doing almost anything but hunting for good investments.
Why suffer existential doubts wondering whether you have edge when you can give your money to somebody proven to have the right stuff? Why indeed… if only it were that easy.
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Fascinating. Thanks @TI.
I don’t do individual stocks myself, aside of a side order of some cheap looking ITs (normal suspects picked up, hopefully on what will turn out to be the cheap, in 2023 – SMT, RCP) and a small helping of some listed PE (HVPE), also acquired this year for the discount to NAV (about 45%).
My mild aversion to going beyond some entertaining side dabbling in trying to select ‘winners’ from bottom up analysis may make my own perspectives overly sceptical here, so apologies in advance for that.
That said, Ackman is quite an operator timing wise.
Markets were still going up in February 2020 when he took out insurance for COVID and covered his long positions in Hilton and other stocks exposed to the risk of lockdowns to the tune of $2.6 bn cover for $27 m premiums.
Reminds me of John Paulson’s Big Short in the GFC.
And who can forget Ackman’s the ‘world is ending’ call to CNBC after completing his exit from the trade in March 2020. Scared me witless at what was already a quite surreal time.
On the other hand, neither of his positions in relation to Netflix and Herbalife ended well.
So perhaps, where idiosyncratic judgment calls are needed, nothing and no one can be banked upon consistently and with full confidence to deliver future performance matching their past record; no matter how impressive the timing and reward to risk ratios of anyone’s previous calls.
No two situations are alike, and whilst market history rhymes from time to time, it doesn’t really repeat. We shouldn’t expect someone’s prior individual stock picking performance to repeat either, whether it turns out that it does or doesn’t.
Interesting, and I follow your logic. Looking through the report and reading between the shine it is hard to see how much further the discount to NAV could stretch, (has reached -41% recently), and I am sceptical about anything with a fee structure to the point of holding only a very small percentage of net wealth in such vehicles.
I wish I had a strong counterpoint, but alas I do not. If it fits well with my diversification is another thing. Tempting and thanks for your time on this article, I enjoyed it very much – A great start to the Mogul side of things TI. 🙂
JimJim
Haven’t yet looked up on any other platforms, but HL this morning are showing an ‘estimated NAV’ of £54.09p, which is just too big a difference from the figure of £42.87p for April for it to be accounted for by anything other than one or more of HL using using different data, a different definition of NAV and/or a different methodology to calculate NAV. If they are using different data then it could simply be wrong. They also have the discount showing at 37% and are showing the last price at £27.60p. So, as they agree with the article on the percentage, I’m inclined to think that their estimated NAV is just wrong. They also show NAV at about £10.1 bn against a market capitalisation of around £6.3 bn, fitting in with a 37% figure.
@Time Like Infinity — Thanks for your long comment! Having written nearly 6,000 words, I’m going to sit back for a bit and let my fellow Moguls like yourself have their say. 😉
Re: HL though, it looks like you’re looking at or their using the USD NAV. It’s always best to go to the source with these things:
https://assets.pershingsquareholdings.com/2023/05/01180844/Performance-Report-April-2023-PSH.pdf
https://pershingsquareholdings.com/performance/net-asset-value-and-returns/
The NAV did move by 1-2% over the period I was writing the post and working off the April performance figures. Unless you’re a hair-trigger trader, week to week shifts are noise, of course.
@JimJim — Cheers! Remember this isn’t advice, as massively disclaimed, but I see you’re doing your own research. 🙂 (I won’t keep saying this in the comments as it will get tedious. 🙂 )
I think explaining the magnitude of the discount to NAV is the issue. The equity portfolio is a vanilla set of stocks so doesn’t generate a sizeable NAV discount. Guersney is not “fishy”. The fees are fine. The US/Europe arbritrage may be bit harder but it’s not 30% hard etc.
The performance in recent years has been driven by the macro so to invest in PSH LN you need to understand the macro investment strategy. Which is a problem since PSH LN isn’t actually a macro fund. It’s not clear what the macro strategy is and whether it’s sustainable or not. What will it cost if volatility falls? The transparency report tells me squat about what is actually in the book. It’s looks very concentrated into a few rather opaque positions.
If I was an institutional investor my issue would: why do I need to invest in PSH LN? If I want those equities I can buy them myself. If I want something more macro I can buy Citadel Wellington (or whoever) etc. I get something far more diversfied, vastly longer track record and better return/risk in a volatile macro environment. I just don’t need PSH LN. A hybrid strategy but not a highly diversified multi-manager. It doesn’t fit in any bucket. Plus Ackman saying he’s seen the light etc could be seen a pure style drift.
For a retail investor though that cannot access Citadel, Millennium etc, this might be one way to keep equity exposure with some downside protection. Whether it’s optimal I just don’t know. Probably worth a punt just on the NAV discount not being realized. I just don’t see where it would fit into my portfolio.
Thanks @TI – that was a brilliant read. Also great comments already – always good to read @ZX’s reflections
@ZXSpectrum48k are these listed hedge funds with transparent public equity holdings the new Benjamin Graham net-nets, with their steep discounts to Book Value; or are they instead a disguised value trap with hidden pitfalls for the unwary?
The FT (free data, not paywalled) gives the main sector holdings as 51.42% consumer cyclical (CC), 18.8% communications equipment and 7.57% real estate, and the main regions as US 50.73%, Netherlands 18.8% and Canada 8.26%; which, aside from the overweight in CC, seems not especially remarkable for a hedgie. It’s not like when Terry Smith’s FEET EM IT got significantly overweight India and underweight China and Taiwan.
Yes the fees are a lot compared with an off the shelf plain vanilla type actively managed OEIC or IT, but I’m seeing a last combined annual fee and performance fee equalling 2.66% of AUM, which isn’t a disaster.
Is the sum here really worth only 63p of the parts?
With listed PE you know going in that a problem which is baked into the cake is that the underlying assets are not normally traded, and as such do not benefit from the daily appraisal of Mr Market (whether or not that collective wisdom is, in some sense, right is another question entirely). You’re relying instead, to one degree or another, on internal valuation models, which are only as good as their assumptions and lagging data.
But Pershing Square, in contrast, looks to have a fairly straightforward portfolio of publicly traded equities, albeit a highly concentrated and high conviction one.
Perhaps the discount reflects institutional fear of Ackman himself, in terms of the perceived unpredictability in future investment choices.
But there are plenty of other big personality players out there making similarly bold calls (for better or worse).
Then again, with this being a traded closed end vehicle, we do get to see the discount via the price, and you can’t argue with that number.
With most hedgies we wouldn’t get to see that, and wouldn’t know in real time if they were struggling to retain and attract investor capital or having to turn new money away at the door.
So, if there is a value trap here, then I can’t see yet what the trap itself is, but that certainly doesn’t mean that there either is or isn’t one.
More I look at this less I understand it. The NAV discount started at -15% or so in 2016 when the trust was launched. Since then it’s been anywhere between -10% to -45% (see attached https://ibb.co/f9yzV62). The trend has been for the discount to increase. Pershing has done buybacks but to no avail.
I can see the basic problem is the fund’s opacity, when combined with substantial concentration risk and modest leverage. Nonetheless, that isn’t an exclusive problem to PSH LN. I don’t really see why it persistently trades on such a large discount unless something is very wrong with the valuation of the hedges. That woudn’t be the case as long as PSH LN is sticking to liquid vanilla stuff like swaptions. The fund adminstrator will have no problem valuing those. It might be different if they have done something more exotic but there is no evidence of that.
Hedge funds like this one are not my thing. I have no view on equities and whether what PSH owns is good or bad. The discount is very compelling but again I’m not sure how to realize the value. A trigger is needed for a substantial revaluation of the discount. I suppose the obvious way is for a transaction that would enable PSH LN to become part of a listed company (preferably US).
@ZXSpectrum48k — Cheers for thoughts. I’m travelling back to family in the provinces today and on the phone so excuse the brevity, but just wondering if you might explain what additional disclosure you would expect to see in the transparency docs etc? (Not *want* to see, but expect to see — from Citadel etc?)
Could transparency be lacking because PSH is listed and thus anyone can see what data it provides? I’m not sure how someone could move against them given they’re a closed end fund and these are options; but perhaps if in illiquid securities shenanigans is possible, especially if PSH would rather not hold until expiry?
I’m thinking out loud here and above my pay grade! 😉 But trying to probe this opacity issue.
Re: not understanding the discount, well exactly. It’s too big IMHO. As a stock picker (not your thing I know) not understanding why something is priced as it is tends to go with the territory when you think you’re on to something (and not just a long term hold or whatnot, a situation).
One is then either right, it’s an opportunity / mis-pricing, or wrong — one didn’t understand or missed something.
I’d love these Mogul posts to eventually be a library of the former, but I’m certain there’ll be plenty of the latter too! :-/
We’ll see with PSH.
Great article, happy to see a recommendation, that too at a good healthy discount.
Just a tiny recommendation – If an indication in the post is made about the type of exits done in the past by yourself(sold at 40% profit etc), that would help as a guardrail for others.
@ZXSpectrum48k #7
Do you think that these deeply discounted listed hedge fund vehicles are the latter day equivalent of the Grahamite net-nets of the 1930s?
They are either a screaming bargain (the whole for 63p in the pound of sum of the parts) or a sophisticated value trap.
It seems very different to listed PE where you know going in that the NAV is a model generated estimate which it would be prudent to discount a little. Here, in contrast, Mr Market gives its collective opinion on the value of the publicly traded equity portfolio each and every trading day.
If the discount is due to institutional perceptions of the manger’s style drift here, then surely this would apply also to the CIOs of other high concentration, high conviction portfolios who changed strategy.
Just to clarify that #11 is a duplicate of #7 as when I tried to send the comment #7 it disappeared.
@AndyJ — Cheers, and agreed the way @ZXSpectrum48K is interrogating the opportunity for themselves is how I hope people will approach these articles.
@flyer123 — Thanks, glad you liked it! Though I must reiterate this *not* a recommendation. It’s better thought of as ‘an idea for exploration and discussion’. The disclaimers are not just there for window dressing. 🙂
This is also why I won’t be giving ongoing guidance or reports on my moves; apart from the fact that it’s an enormous faff to do so consistently if you declare you’re going to do (which, again, I am definitely not going to do), it could encourage people to think in terms of recommendations again — or even “what TI is doing”. That doesn’t matter, what matters is what you think and what you will be doing. 🙂
Obviously I’m biased but I think the specific name being discussed is almost the least interesting part of the 6,000 words above. 😉 At least I hope I’d think that if I came to it as a reader myself a decade ago say.
More of a reminder of my thinking on this: https://monevator.com/too-good-to-be-true-how-to-approach-investment-opinion-commentary-and-third-party-analysis/
Sorry to belabour all this, and thanks so much to you and the others here for signing up!
Only a small % of Mogul members have so far commented, but that’s pretty standard with websites (commenter-to-reader ratio) so might take a few months before we get long threads here. We’re the pioneers! 😉
@TI. PSH really doesn’t offer any real insight into their macro hedges when compared to their equity positions. They seem to provide little more than a performance number (so in 2022 swaptions generated 14.3%; as of 21Mar23 they had lost 3.2%). No attribution via DV01, curve risk, currency, vega etc.
Being predictable is key to institutional investment. The investor wants to be able to bucket the investment into certain categories and assign some level of beta/risk vector. It’s a definite issue if the hedges are the biggest determinant of peformance (swaptions were 3x bigger than any equity return attribution in 2022). It’s less problematic with a big diversified multi-manager but PSH also has concentration risk. How am I supposed to know what I’m going to get with PSH? More transparency on the hedge side would help. Perhaps even split into an “equity” and “macro” fund?
@TLI. I really cannot answer that tbh. The number of listed hedge funds is very small. Too small to make it a relevant sample. I agree with you (and implied that in a prior comment) that PSH is not necessarily unusual in being concentrated, having some level of style drift etc. Perhaps it’s simply that the rarity of these types of listed hedge funds means that the market applies a substantial discount. I could understand 10-15%. I just don’t understand 30-40%.
@ZXSpectrum48k – many thanks. You’ve hit the nail on the head again. The N=1 sample size problem. A widespread epistemic issue (e.g. arguments over odds of abiogenesis and ‘fine tuning’ etc).
If, as an investor, you actually already wanted exposure to a eclectic and concentrated handful of arguably higher quality US focussed cyclic public companies (and if you we’re happy with the hotel and restaurant sectors) then why not buy Pershing Square and get them at a discount? The fees will takes years to counterbalance the discount and best guess is that over time it would seem more likely that the discount would shrink than expand. Also then, perhaps, from time to time Ackman’s macro hedging calls, like in 2020, might even again add some positive (albeit highly unpredictable) and highly asymmetric risk to reward weighted returns in a way that is not otherwise readily accessible to the typical retail investor.
But if, as an investor, you didn’t particularly want to be in a distinct, unusual and concentrated position in either the specific names which Pershing has actually invested in or in cyclical consumer facing listed US companies of that type, then I’m somewhat doubtful that the discount alone would make it good fit.
@ZXSpectrum48k — Thanks for that extra colour. I had anticipated institutions could have a problem buying PSH and your thoughts in this thread confirm it. The trust is so large (relative to most investment trusts) that this lack of institutional appetite could be partly behind the discount, though it’s still a bit curious how it’s widened over recent years even while ‘proving’ the value of its (opaque) hedges. I presume institutions remained fairly constantly ambivalent on a strategic level, so there must be some of the other factors mentioned (or missed) at play too.
@TI (#16): With a £3.8 bn gap between NAV (£10.1 bn) and trust capitalisation (£6.3 bn), if I had to guess, then I’d say only massive institutional buying could fully close the discount.
Ackman is no household name with retail investors and, in the absence of recent (>2014) past excess returns for them to try and chase here (unlike for Bolton, Smith and Woodford in their golden eras), why would they buy in themselves, and why would IFAs recommend the trust to them?
As for an institutional turnaround, that would be quite an ask for a value realising catalyst IMHO.
This is one of my main issues with deep value investing – excellent idea in principle, and nothing against it per se – but what event is actually going to come along and unlock that value and how long will it take? There’s an opportunity cost to consider when buying for a discount. I’ve done it a little myself with ITs, but fully expect it not to work, even though I hope it will.
@TI, should I have received an email when this Mogul article was first listed on the Monevator site? I did not receive one.
Otherwise, I will have to frequently check the Monevator website for the latest Mogul and TA’s Maven articles.
@RAMMY — Hi thanks for becoming a member! You were sent the email at “May 26, 2023 at 12:15am BST”. Can you check your spam folders and similar please? It should be in there.
@TLI — All fair points, my only pushback would be I don’t think it will necessarily take institutional buying to close the discount on account of the magnitude of the gap between NAV and market cap. Of course it’s true if it was a tiny trust of £20m with a fairly small free float then maybe you or me could even start closing the gap! That’s clearly not going to happen here with PSH.
However as you know it’s ultimately the next marginal trade that sets the price and hence the market cap. If for whatever reason people believe it’s appropriate to pay closer to a 10% discount, say, then the price can move before the ‘missing’ billions are ‘filled in’, so to speak.
Just on the recent-ish past returns not being an incentive, evidently you’re right — the discount has grown — but I think the great returns have been there. The performance over the past five years has been incredible, albeit the market clearly seems to be discounting its repeatability.
Hi @RAMMY (comment #18), subject of course to the official line on this from @TI then: yes, you should get an email.
The email for me arrived about 30 minutes or so after I spotted the first Mogul article on the website, so it may not always be simultaneous.
The email might have gone to your spam folder and, if not, then it may be best to just quickly check that your preferred email address is typed correctly in your membership details section.
@TI (#19), apologies for replying to #18 via #20 after your reply to @RAMMY. My #20 crossed with your #19 whilst I was typing it.
On the discount, yes, you’re right. It is the marginal buyer/seller, and not the aggregate demand gap implied by the difference between the market cap of the trust and it’s NAV.
Never formally did economics here, so supply/demand curves are not fully embedded into my thinking.
Is that the end of the story though on marginal price setting?
If, as a buyer, I see the trust’s price is at 27 and it’s NAV is at 43 then I’m not going to bid 43.
I might bid, say, 29 if nobody is actually selling at the last transacted price of 27.
But I’m not going to bid, say, 35, less still 43, just because that’s what the NAV is at.
Likewise, if I’m a seller, I might ask for 29, but I’m not going to quote a sell price of 35.
So, it seems to me at least, that prices can get anchored far away from the NAV and stay there even though they are set by the marginal level of supply and demand.
On the performance, this all comes down to one’s credence in reliably repeatable idiosyncratic alpha.
If, as so many retail punters do (the ‘star manager’ syndrome), an investor were to give high credence to this, then paying up more for the trust makes sense.
But if you look at the data of active management (SPIVA etc), as you’d expect most institutions to do (and perhaps even, dare say I, more IFAs these days), then I’d suggest that those institutional investors would give a fairly low credence to the persistent and reliable alpha generator hypothesis.
And if you don’t attach much credence to the repetition of recent outperformance, then why would you pay up for the hope of it doing so by offering more than the current market price?
BTW: there’s some really excellent and detailed 2018 research (can’t immediately lay my hands on it – so this is from my recollection – but it might be AQR or Faber) which fully accounts for all of Berkshire Hathaway’s performance since 1965 using factor loadings and leverage.
If that research is right, then it doesn’t make Buffet any less of an genius, but he’s then a genius because of his use of (and effective execution in the use of) factors and leverage, and not because of stock specific selection per se.
@TI. Performance over the past five years has been excellent but there are quite a few macro funds that have generated similar returns on a risk-adjusted basis. It’s been a very good environment. Many an institutional investor will be happy to leverage a lower volatility macro hedge fund 2x (or just buy the 2x levered version which some funds offer). They also don’t really need a listed closed-end fund. They are happy to buy something with a longer redemption profile. There is a 5 year waiting list now to get into Millennium because the redemption profile is 5%/quarter so it takes 5 years to completely exit!
It’s sort of odd. Split PSH into an active equity piece and a macro piece. You look at the macro returns of PSH and what it offers seems to be downside tail protection in a lumpy, rather irregular, fashion. Given how big macro is right now, that sort of fund could be probably be marketed at it’s NAV. What is left is a few actively selected stocks. It’s not clear why you would buy that but nor is there any reason for it to trade at 30-40% discount to NAV. Unless I’m missing some really big slug of private equity or structured product, the parts are definately worth more than the price. Ackman has turned into a good macro tail trader but looks perhaps a bit average as a value-orientated stock picker. He just doesn’t want to admit it and split it out!
@ZXSpectrum48k (#22): there would be huge retail interest, I think, for an ‘open to all’ closed-end version of Spitznagel’s and Taleb’s Universa fund. Ackman could fill that gap. He’s shown some aptitude on when to hit out and when to hold back on these massively asymmetric bets, like Spitznagel.
If such a PSH spin off could be structured to meet the ISA and/or SIPP rules to avoid CGT on the lumpy gains, then all the better.
Not all of us have got the $50 m entry fee for Universa, and paying an ongoing 2% p.a. on covered put protection, which only covers the premium on a 20% market fall, makes no sense mathematically speaking.
The fees for a spin off would have to be fair bit lower though than 1.5 and 16. Ackman would not be asked to pick stocks here, so he shouldn’t get rewarded as if he was. Perhaps 0.5 and 10 might be fair?
Great first article and thank you all for the insightful comments. It is clear that some of you really do know your knitting. But thanks to TI for an insightful probe into PSH which touches on more. I currently hold around 4% and that feels comfortable.
I really enjoyed this article. I’ve nothing to contribute, but this is exactly what I hoped to get more of with mogul membership. Thanks!
@TLI. Going somewhat off topic but if a decent macro fund was offering capacity to institutional investors at 0.5% and 10% I reckon it would be filled in about a nanosecond. Macro hasn’t been this frothy since probably 2009/10. There is massive pressure from investors to increase AUM. Plus management fees are out. Cost pass through (CPT) has replaced them. So it’s CPT and 20% or you don’t get to invest.
Compare that with end 2017 when nobody wanted macro. Awesome funds like Bluecrest had gone private. Brevan was sub $3bn in AUM. Tudor was mostly Paul’s money. Moore was falling apart etc. The consensuis was macro volatility, and especially rate volatility, was dead and buried. Forever.
After five good years for macro and very high rate volatility, now everybody wants it again. Multi managers like Citadel and MLP are increasing exposure to macro. Equity focusssed players like Verition are adding macro. Brevan is back above $30bn. Everyone is hiring with very strong bids for talent. I admit to being a mean-reversion type of person so for me this is never a good sign.
Thanks for the positive feedback on the article guys.
Re: the idea of an Ackman Macro Fund. I’d say he’s approaching these ‘macro hedges’, as he terms them, as more a value investor than a quant.
I recall seeing much earlier interviews (2020?) about these bets where Ackman really stressed the asymmetrical pay-off as much as the hedging benefits. i.e. He saw mispriced value and bought what he could, as I heard him, more than he did any sort of carefully structured and weighted hedge to his equity exposure. This isn’t what @ZX/institutions are looking for, as @ZX has articulated so clearly here. And there’s probably not much of a ‘strategy’ to spin-off. (Maybe it’d be more of a long-tail event fund a la Taleb?)
I suppose Ackman would argue that his stock picking hasn’t been pedestrian, it’s just been a rough time for his style of stocks? (Higher rated, more prone to re-rating with higher interest rates). I haven’t got a strong view on the equity portfolio in terms of its individual merits.
At the end of the day this discussion has revealed to me that this is even more of a ‘jockey play’ than I’d appreciated, I think. Obviously I realized Ackman was the main feature, my post is Ackman-centric. But yes, even more Ackman-critical. Personally I’m very comfortable having lots of idiosyncratic risk in my portfolio (it’s what a portfolio of selected stocks is, versus an index tracker/hugger) so for my purposes I can treat it as ‘a company that seeks to make investment gains’ rather than a ‘fund that adds this highly probable risk/return metric to my portfolio’. Can see and appreciate that doesn’t work with some other investing approaches. 🙂
Finally and slightly off-topic for the post, yes, but on-topic for the comments, re: macro funds I finally got back into BH Macro (ticker: BHMG) when it did a big share offer at a discount a few months ago.
I’m aware of the old market adage ‘when the ducks quack feed ’em’ and knew I was possibly being a duck… but it hadn’t been on a discount for a while. Didn’t subscribe in massive size (3% portfolio value perhaps?)
There was initial pop, up to a 7-8% gain, IIRC, but of course this was meant to be a long-term hold for portfolio diversification reasons so I held.
It’s since slipped below the price I paid in the offer. So I guess I was a quacking duck. 😐 Seems that March in particular was mayhem for macro strategies, due to the rates moves caused by the US regional bank kerfuffles.
I’ve since added a little bit more BHMG to my ‘other’ portfolio (the one I use / mentally bucket as a less volatility buffer against my IO mortgage) which is up a few percent. The premium is still 3-4% and the recent (few months) poor performance is unusual; I might add some more. It’s one of the only/easiest ways for an oik like me (especially with my love of liquidity) to add macro to my portfolio.
Not a recommendation but something to consider researching if one is curious about macro exposure.
Interesting and thanks for this insightful effort TI. The ‘growth’ equity picks in restaurants and hotels seem slightly odd to me too although wondering if the equity make up has to fill a certain risk profile in order to make the debt/margin side work?
Oh and warm welcome back to @ZX!
@TI, could be helpful to highlight in the Archive, Latest Post section of Monevator website which article is a Maven & Mogul to separate these articles from the general articles.
Also, I am assuming we should receive one Maven and one Mogul article per month. Is that correct. ?
@Rammy — Yes that’s correct re: the article cadence. You can see which articles are Mavens / Moguls by the byline in the archives etc.
Eventually we will have shortcuts to Mavens / Moguls article archives, but it’s a bit premature/spartan right now. 🙂
e.g. https://monevator.com/tag/moguls/
On the eclecticism of the PSH stock picks, the $1.1 bn recently disclosed position in Alphabet does perhaps go to mainstream the portfolio a fair bit. Also makes the discount harder to fathom.
Ackman’s recent interview covered the funds macro hedging, including over interest rates:
“I had a very similar view about interest rates and we were completely ahead of the curve and the mistake was not making that a bigger bet,” Goes onto say that PSH should have made $10 billion on hedging interest rate risk but it made $2.8 billion because they were a “little timid.”
@TLI — Interesting, I wonder how he was positioned re: the latest volatility. Also feel free to share links to useful sources (e.g. this interview!) in the comments here. 🙂
It’s from his interview with 20 minute VC at:
https://www.thetwentyminutevc.com/bill-ackman/
BTW:
a) Intrigued by (& on the whole) quite like Ackman’s ‘zero day’ thinking as described in this interview (although personally don’t believe you should ignore the past either): “Don’t let the past, disrupt the future. If you just focus on the past, it will distract you. Start with a blank sheet of paper. It’s a new set, new opportunity, and a rebuild from there.”
b). Now I’ve read up a bit on PSH’s biggest holding (UMG NV @18.8%) I think I now see what Ackman saw in the Group when he acquired 7.1% from Vivendi in August 2021.
c). The PSH discount is back up to 37.5%, having dipped to 35% in recent weeks. That makes it more attractive to me, but others may prefer, if they’re thinking of a flutter, to buy into a discount which is materially narrowing rather than one which is holding steady. I note that the last IC piece (27/1/2022) on PSH had the rather uncharitable and perhaps a bit harsh, headline: “Pershing Square: A tempting discount but an erratic record”.
Rewatching the interview and hearing again Ackman’s professed interest in politics, it struck me that the catalyst here for realising the discount over a 5 year window could be a future winding up of PSH (and sale of it’s fully liquid large cap listed equity portfolio) in order that Ackman can concentrate on a run for office, quite possibly as a Democrat seeking to be nominated in the November 2028 Presidential election. This scenario assumes, I imagine, that Biden looses next November, such that – 4 years after that – the Democrats would likely be looking for someone to the centre right to challenge a right wing Republican incumbent.
For further DYOR checked out: Seeking Alpha’s (‘SA’): “Pershing Square: Unloved Deeply Discounted Value Proposition” (22/6/2023, Intrinsic Analysis); and “Bill Ackman’s Pershing Square Hedge Fund Looks Compelling At A 35% Discount” (8/9/2022, George Spritzer): MoneyWeek: “Pershing Square: a deeply undervalued investment trust to buy now” (13/9/2021, Max King): and InvestorPlace “There’s a Better Way to Buy Ackman Than Through Pershing Square Tontine” (11/1/2021, Ian Bezek). Contrary SA view at: “Ackman Investment Performance Still Horrible – Pershing Square At Risk (22/2/2017, Old Analyst).
Posting now, however, due to SA piece today on 2 PSH investments: “Fannie Mae And Freddie Mac: Lottery Tickets With Much Better Odds” (4/7/2023, Chance Tacia), which notes “Pershing Square remains invested in their respective common shares”.
PSH discount now at 33%, down from 38% a fortnight ago, and shares are up slightly at £29, versus £27 at the end of May.
@TLI — Some of those Seeking Alpha posts as you note are very old; 2017 it was a somewhat different beast (he was still doing activism then) and he only bought Universal Music in mid-late 2021. 🙂
I didn’t get into the Fannie/Freddie holdings which he has held for yonks and occasionally bangs the drums on. They are very small position with potentially massive upside if, as I understand it, the regulators release them back in to the free market. Their fate has been wrangled over in the courts since the global financial crisis! Lottery tickets are the word, but then sometimes someone wins the lottery…
Yes, the discount has inched down since I posted while the NAV has done much less. A good if very short-term example of returns from discount closing in action. But this could easily reverse if US markets wobble again, and it isn’t the fundamental change we’re hoping for.
I doubt the discount will shrink below 25% without something structural happening (or a roaring bull market) but who knows. 🙂
Structural discount puzzling. Listing as Guernsey closed end generally won’t restrict US investor availability. PSH would have to comply with Accredited Investor Status (r. 506, Reg. D, Securities Act 1933), and either register with SEC or rely on private placements exceptions. There would be tax reporting obligations (and possibly some restrictions) for US investors making investments through offshore entities. But this is really not insurmountable stuff. Guernsey is a well established and respected jurisdiction for investment funds, and its FSC has a good rep. There’s no CT, CGT or WHT on divis paid to non-residents. Whilst the ongoing 1.5/16 fees will create a small unavoidable discount mechanism, the permanent capital nature of PSH should be a net positive. It’s very odd, to the extent it would be worth PSH asking US family offices etc why they won’t invest + why they think there is such a discount.
For me the ‘hidden’ (albeit in plain sight) value here is Ackman’s willingness to go big on the occasional macro hedging bet. If he does what he now says that he will and then gets it right the next time (& it might be a decade or longer, or it could be sooner) he could then double the fund size almost overnight (he says now that the 2021 interest rate punt – with an FOMC rate strike price at 93 bps – should have made $10bn, not $2.8bn, if he’d sized it right). I’ll pay up 1.5/16 on a 33-38% NAV discount for that; not that I can see anything obvious against his (albeit very personal) choice of stocks (aside from its concentration & his sheer confidence in them, the latter of which is perhaps a bit scary).
Institutional Investor on the case this week:
https://www.institutionalinvestor.com/article/2bvxoyfxher1gd4leh728/portfolio/pershing-square-had-a-bang-up-june-but-its-stock-isnt-keeping-up
Usual discount discussion, which risks becoming a bit of a circular echo chamber of self reinforcement at this point! 🙂
Thanks @TI #39. Just taken plunge, or rather dipped toe. 90 day limit order 175 PSH shares @ £27, so 5% 0.5% of ISA/SIPP/GIA combo (so any performance issues won’t make a difference to big picture). Went for limit order, not kill or fill, following Josh’s psychological gambit to help cope with falling markets:
https://thereformedbroker.com/2016/06/24/my-little-trick-for-coping-with-a-correction-2/
I feel I’ve more thoroughly researched this one now than any comparably sized position hitherto; but, then again, in practice DYOR never actually seemed to make much difference to what happened next. Post purchase, were all in the hands of the Market Gods and, as they say: Man plans, but God laughs.
Something went remiss with formatting there after clicking “Submit”. Should say “so 5% below close”, not “so 5%”. Hope it makes sense now.
After rally following data on US, Euro and UK inflation, it looked like limit order not going to met (PSH @£29.40) so cancelled & just brought £3k worth instead. Still at a 33% discount (also its 12 month average). Downsized position (compared to limit order) to reflect slightly less risk/ reward of higher price + smaller discount than when @TI’s piece came out (£27 and 38%). Also brought same amount of BH Macro, as that’s got a very different strategy to PSH & it was still showing 7% discount.
FWIW I’ve no expectation that the discount will narrow organically. Some chat online in bulletin boards that Ackman looking to reverse merge into Howard Hughes holding but US investment companies act preventing this. Who knows? Worth a small punt nonetheless IMHO.
Ackman’s now shorting the long end of US Treasuries: https://twitter.com/billackman/status/1686906272937869312
I’ve shoved a few grand into PSH out of curiosity, rather than any real conviction, but having nonetheless done the research following the above article. It’s a negligible position across ISA/SIPP/GIA, so no harm if it heads South. I guess I like Ackman’s macro bet posture – i.e. go big or go home. Not something accessible elsewhere. For those new to Moguls and reading article for the 1st time, or who are perhaps still weighing up the pros and cons on PSH, it might be useful to have a counter point of why not to invest, just out of a sense of balance. On a different Monevator thread, ZX in effect made that case (far better and more eloquently than I can), so I’ll just cut and paste it here: “@TI. My issue with your view on hedge funds is that you lump them all together like they are a homogeneous asset class. You wouldn’t lump together the performance of cash with equities or bonds. They have different risk-return profiles so it would make no sense. It’s the same with hedge funds. You cannot put say Bluecrest, with a core competence in trading the shape of yield curves, in the [same] bucket as Pershing Square where Ackman is some activist equity punter. It simply makes no sense at all. You cannot compare Pershing which can lose 50% in a bad year with a fund like Millennium where every PM has a 1% VAR limit and 5% high to low stop. They are just totally different. It makes no sense to measure them against each other or against the S&P.” Basically, PSH runs a very concentrated equity portfolio with some occasional idiosyncratic big macro trades, and therefore can’t be compared to highly risk constrained and risk adverse macro or other specialists hedge funds, like Citadel or BCM. On the other hand, neither I nor I suspect in all likelihood you dear reader can invest in Citadel or BCM, whereas we can for PSH.
Ackman’s shorting of long dated US Treasury Bills seems to be going in right direction (at least for now) 🙂
https://www.reuters.com/markets/us/hedge-fund-manager-bill-ackman-sees-us-long-term-rates-rising-2023-09-22/
Whether yields get up to 5.5% remains to be seen though. Not expecting the PSH discount to NAV closing organically and also remaining agnostic to PSH’s very concentrated and idiosyncratic share portfolio; but if Ackman pulls off another successful big macro trade then PSH should prove its worth on a NAV basis, and maybe that’ll even help to narrow the discount a bit.
Ackman at the CNBC “Delivering Alpha” conference earlier this week:
https://youtu.be/1IZvW-Zdgzk?si=-8GpgRjPapoHTz0p
Covers:
– Shorting the 30-year Treasury. This trade continues to move in the right direction for PSH. No mention though of how much staked and possible payout multiple.
– View on structural rates and inflation
– Owning an 8 company portfolio of ‘royalty’ businesses
– PSH recent 16% portfolio investment into Alphabet/Google
– Some (IMO rather bizarre) views on politics, vaccines etc at the end – re. Robert Kennedy Junior
Discount still ~35%. I’ve increased my stake since September to a now non negible 1% allocation of combined SIPP/ISA/GIA.
On 23 Oct Ackman confirmed PSH had covered its shorts of US 30 yr Treasury Bills. On 25 Oct Reuters reports PSH made $200 mm profit on the trade. Ackman states on Twitter/ X “economy is slowing faster than recent data suggests…There is too much risk in the world to remain short bonds at current long-term rates” NAV up to nearly $57 (~£47). PSH discount now slightly wider at 38%, which is roughly on par with the Cayzer family run Caledonia IT (39%), but less than Harborvest listed PE IT (where the discount has widened yet again to 47% despite – or perhaps because of – a rise in the NAV)
Whhehey. PSH share price now at ATH, up well over 20% (£33.60p today v £27 at time of the May piece). Discount still at nearly 33%, but down from 37-38% at the time of the piece, and now just below its 34% 12 month average.
[Standard disclaimer that I will not generally be committing to follow or even occasionally come back to the subject of these posts, as (a) it’s not that kind of offering and (b) I have got nothing like the resources to do so, but…]
Interesting 4% decline in the PSH share price today, which seems well in excess of the modest moves in its portfolio holdings. And other US investment trusts such as NAIT barely down.
Ackman is making huge waves today on Twitter/X in conjunction with the political shenanigans at Harvard.
I wonder if some money fears at best distraction and at worst some kind of backlash?
Blimey, just read Ackman’s X/Twitter. He’s fired up for sure, but agree with him or not, it’s probably in the top percentile for its persuasiveness in the ‘War on Woke’ (at least as compared with the DT’s, Daily Mail’s and GOP’s comedic attempts). If I was a cynic, then I’d say he’s now angling for a presidential run as a (right/) centrist independent (i e. a Trump spoiler). More likely though is that he just feels very strongly about these issues.
In any event, it’s going to be a distraction from running PSH and shareholders have responded as they did with Tesla when Musk got himself entangled in buying Twitter. Not sure how a more general backlash could/would affect PSH though.
Discount seems to be narrowing nicely here now, price up over 40% since this article published. Already north of the “Middling scenario”
Press also about a PSH USA arm… who knows
JimJim
@JimJim — Yes, it’s done well but to some extent the thesis is broken as Ackman has intimated alongside the launch of the US fund that he’s given up the idea of moving PSH to the States. Therefore I think anyone owning here (which still includes me but not sure for how much longer…) probably needs to assume the discount will only close with non-catalyst reasons, such as a bonkers bull run in the markets.
Incidentally there’s an unusual kicker in the new fund launch that creates a reduction in management fees for PSH shareholders. Presumably an attempt to stop ‘our’ discount widening even further if money prefers to be in the US fund.
I’d expect massive replication between PSH and the new US fund, but the latter will likely have more holdings and so some stuff PSH doesn’t. Hopefully the lesser ideas!
As ever with Moguls, just my thoughts NEVER ADVICE — thanks for understanding.
@JimJim — PSH price has continued to move higher. Discount now just under 25% PTB. Perhaps the market thinks that USPSH can/will profitably buy shares in UKPSH to narrow the discount. FWIW for now I still hold. (Not investing advice as ever.)
@TI #53, Reading the recent report, perhaps that is exactly their intention (narrow the discount)? Time, as always will tell – but the report seems well received.
JimJim
Sold in GIA as spring housekeeping before end tax year to use up some of this year’s CGT allowance. Question now is whether or not to more or less immediately buy back into PSH in ISA, as to do so would involve selling some trackers; or wait until this Friday, 6th April, when one can make ISA contribution for new tax year.
PSH still looks v. promising in some regards. 2100% return over two decades, ~4 times that of S&P 500, and over 5 years up 234%, versus 100% from the S&P 500, 25% from the All-Share, and 174 and 157 % respectively from the best-in-class equity investment trust and open-ended fund. Not bad.
But, OTOH, the discount is down from bonkers (38%) to merely inexplicable (25%) and no announcement (at least yet) that PS USA when launched will buy PSH to close its discount further. Also, if do bed and ISA, then what position size to take in ISA? As always, many choices, but no certainties. Such is investment.
Interesting take from Semafor, suggesting that Ackman’s Twitter recent crusades are actually what’s narrowed the discount:
https://www.semafor.com/article/05/09/2024/how-bill-ackmans-anti-woke-crusade-paid-off
Hmm!
Makes me glad to have taken the 30% plus profit on PSH at the end of the 23/24 tax year in the GIA, and used the sale proceeds towards the 24/25 S&S ISA allowance. Didn’t buy back in the ISA in the end.
Had attributed the PSH surge to £40 to the Street getting wind of the plan to use Ackman’s new US vehicle to subsidise the 1.5% p.a. fee for PSH – i.e. a smaller PSH fee means less need for a discount. But it seems that other forces were at work instead.
Interesting that RCP has been making up ground too.
Perhaps IT discounts are starting to narrow now, notwithstanding the best efforts of the platforms to restrict access by retail to so many well known names in the space.
When the PE trusts like HVPE finally see a lightening of their discount that will be the sign that the thaw has become irreversible IMO.
Ackman the salesman par excellence:
https://open.substack.com/pub/russellgclark/p/thinking-about-bill-ackman
Not going so well on UMG presently:
https://www.institutionalinvestor.com/article/2e1zldmh7uk1tkpnjxd6o/portfolio/bill-ackmans-love-affair-with-universal-music-drags-down-his-hedge-fund