Finance

Duncan Mavin is a former Bloomberg Gadfly columnist.

Pershing Square boss Bill Ackman's smartest move of the past few years: going Dutch.

Back in autumn 2014, Ackman sold shares in Pershing Square Holdings Ltd. (PSH) on the public market in Amsterdam. The initial public offering ended a years-long pursuit of a listing. PSH, a closed-end fund, raised about $2.9 billion.

Underwater
PSH shares are currently trading at a significant discount to their Oct. '14 listing price
Source: Bloomberg

Since then, PSH's stock has not done well. The shares -- priced at $25 in the IPO -- fell by more than 10 percent on their debut. They have skidded further downward over the past few months and now trade at just about $12.90.

The cause of the slide is more or less summed up in one word: Valeant. PSH's stock fell 11.6 percent Tuesday as the Canadian pharma company stumbled through a calamitous conference call. That impact makes sense given Valeant is one of just twelve Pershing Square investments. Shareholders know they are always taking a risk putting their money into a vehicle with such concentrated holdings.

Health Check
Shares in Amsterdam-listed Pershing Square Holdings have tracked Valeant downwards
Source: Bloomberg

There is another factor that weighs on PSH. At its IPO, it had no debt. That changed in June 2015, when PSH raised $1 billion for investments through a sale of senior notes that don't mature until 2022. PSH touted the prospect of enhanced returns from "a prudent amount of long-term, cost-effective leverage." 

But as the company's net asset value declines, so the level of its leverage increases. Jefferies analyst Matthew Hose estimates in a note that PSH's current level is about 27 percent of net asset value, which could be uncomfortably high for some investors.

Ackman, however, has substantial protection from disillusioned investors. PSH is structured so that a separate Pershing Square vehicle has a controlling 50.1 percent vote. Angry PSH shareholders can sell their shares, but they'll never have enough power to force the business to be restructured or wound down.

Indeed, the winner from the PSH is clearly Ackman. The listed vehicle has tied up capital that can't be dislodged by bad headlines related to the companies it has invested in. That's in contrast to the private Pershing Square funds, whose investors can withdraw one-eighth of their money each quarter, an arrangement that could do a lot of damage very quickly and bleed them dry in two years.

So, the Amsterdam-listing means there is long-term capital that helps share the pain of volatile investments. And while the Valeant fiasco is a chastening experience, Ackman's decision to sell shares in a public fund means he's at least partly insulated from the danger of a rapid uptick in redemptions.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Duncan Mavin in London at dmavin@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net