Ackman Dangles IPO of Pershing Square Holdings in 2014Katherine Burton and Arie Shapira
Bill Ackman, the hedge-fund investor who’s waging campaigns against Herbalife Ltd. and Allergan Inc., is seeking to raise money in a public share sale this year to give him more firepower to invest.
The initial public offering of a fund would enable $15 billion Pershing Square Capital Management LP to raise permanent capital, according to an investor letter obtained by Bloomberg News. The money raised through an IPO could be fully invested and not at the risk of investor redemptions.
Ackman has planned to sell shares to the public since at least 2011 to avoid a repeat of 2009 when investors pulled about 27 percent of the New York-based firm’s capital. That forced the firm to keep a “substantial portion” of assets in cash, the billionaire wrote in the letter. Pershing Square itself would not be going public.
“Because we are an active, control and influence-oriented investor, we have avoided being fully invested because of the risk of investor redemptions,” Ackman wrote in the letter. “We will hopefully begin to address this issue with the initial public offering of Pershing Square Holdings Ltd., targeted for later this year, which will increase the amount of our capital that is permanent.”
In May 2013, he told investors he was about $500 million short of the $3 billion he wants to raise for a publicly traded closed-end fund to list on the London Stock Exchange. Ackman declined to comment today on the IPO.
“The pro side is he’s had a pretty good track record from Pershing Square,” said Jay Rogers, president of Irvine, California-based Alpha Strategies Investment Consulting Inc., which advises hedge-fund clients and managers. “A lot of people are fascinated with going public for the amount of money you can raise and it lowers your cost of capital.”
The effort to list the fund comes as his oldest fund has gained 25 percent this year through June and 21 percent per annum since its January 2004 inception. Some of his biggest investments have recently received a large amount of media attention.
He’s spent almost two years trying to prove Herbalife is a pyramid scheme. The marketer of vitamins and weight-loss shakes turned into Pershing’s biggest loser after the shares soared, he said in a February presentation. The shares have slumped after the disclosure of a U.S. Federal Trade Commission investigation and the Los Angeles-based company said it missed earnings projections.
Ackman said in the letter that the cost of maintaining a position in options that profit from a drop in Herbalife shares has declined “substantially” since Herbalife canceled its dividend. Most of the over-the-counter contracts Pershing currently holds will expire next year.
“We will extend their terms by paying additional premiums if it is necessary to do so,” Ackman wrote.
Ackman has bet $1 billion against Herbalife and mounted a campaign that was capped by a more than three-hour presentation on July 22 purporting to show that the company is an Enron-style fraud. Investors brushed off his arguments, sending the stock up 25 percent in one day. He acknowledged in today’s letter that the lengthy presentation and the hype he generated ahead of it were missteps. The stock is down more than 30 percent this year.
In April, Pershing and Valeant Pharmaceuticals International Inc. teamed up to bid for Allergan. Pershing amassed a 9.7 percent stake in Allergan to help push a deal to completion. Allergan has rebuffed the bid, and Ackman has called for a meeting of shareholders to remove most of Allergan’s board.
Ackman would be following hedge-fund managers including Alan Howard and Dan Loeb in raising longer-term capital through public markets.
Brevan Howard Capital Management LP raised money for BH Macro, an investment trust linked to the firm’s main fund. In 2013, Loeb sold shares in Third Point Reinsurance Ltd., a Bermuda-based company that counts on his hedge fund to oversee its investment portfolio.
For Rogers, he wouldn’t recommend investors buy shares in a publicly-traded fund run by a hedge-fund manager in part because of the way retail investors act during times of crisis. The average retail investor “makes the worst possible decisions at the worst possible time,” he said.