Bill Ackman Has Some More PSUS Ideas

The basic problem with the initial public offering of Bill Ackman’s proposed US closed-end fund, Pershing Square USA, was that he couldn’t give investors a discount. The fundraising pitch for PSUS was that you’d pay $50 for a share, and Ackman would invest that $50 (minus some underwriting fees) for you, in a portfolio of mostly large-cap US stocks but also some derivatives bets. It is entirely possible that $50 of Bill Ackman investments is worth more than $50; he has a good track record.

But it is also entirely possible that $50 of Bill Ackman investments is worth less than $50: Many closed-end funds, including Ackman’s own European fund, trade at a discount to net asset value. So when Ackman pitched his new fund to investors, they might reasonably have said: “Yes, sure, I would love to have you invest $50 for me. But I’d like to pay $45 for that. And judging by history, I’ll be able to pay $45 for a share a week after the IPO, so I’ll just wait and do that.” If everyone thinks that, then the IPO can’t get done: He needs to sell the shares at $50 before they can trade down to $45. And, crucially, he can’t sell the shares at $45: The point of the IPO is to raise the $50 to put in the pot, and selling the shares for less than $50 doesn’t accomplish that.