Oxstones Investment Club™By Alexandra Stevenson, NY Times,
One of Wall Street’s boldest investors, the billionaire hedge fund manager William A. Ackman, is building an unusual multibillion-dollar war chest.
While hedge funds typically raise funds privately, the founder of the $13 billion Pershing Square Capital Management is planning to tap the public stock market. Mr. Ackman is aiming to raise billions of dollars for a closed-end fund that could list on the London Stock Exchange as soon as this summer, according to three people briefed on the matter but not authorized to discuss it.
Mr. Ackman, 48, was in London in late April to drum up support among European investors for the fund, according to two of the three people who were briefed.
By raising money in a separate structure from his hedge fund, he can lock up and put to use money that is not subject to investor redemption requests. Investors in the publicly listed entity would be betting on his success as an activist investor. And, unlike most investors in hedge funds, they would be able to sell their shares in the market whenever they wish.
While hedge funds typically insist on restricting investors’ ability to cash out, fund managers have long expressed frustration that when windows do open, investors move too quickly to pull their money during tough times. Such mass exits prevent managers from taking advantage of bigger opportunities that require a longer time to make a profit and often force the fund to take losses.
The timing of Mr. Ackman’s plan coincides with a resurgence of activist investors waging campaigns against corporate boards, seeking to change a company’s business or compel it to be more “shareholder friendly” by returning money to investors. In the first three months of 2014, $3.5 billion of new capital flooded into activist funds, according to Hedge Fund Research.
In October, Mr. Ackman told an audience at the Said Business School at Oxford University in England that it was only a matter of time before investor activism took hold in Europe as European pensioners would demand bigger returns after years of low returns.
Mr. Ackman will list his offshore fund, Pershing Square Holdings, after raising at least $4 billion, according to an offering document shown to investors in April and described to The New York Times. At the time, the offshore fund had $2.6 billion in assets under management.
Mr. Ackman will seek to raise around $1 billion to $3 billion, according to the three people briefed on the matter.
The plans for the fund are fluid, these people cautioned. The timing and the choice of an exchange could change, or Mr. Ackman could decide not to proceed.
The idea for a public listing is not a new one for the hedge fund manager, who told investors two years ago that Pershing Square would list a fund with more than $4 billion in assets. That public offering never happened, however. One person briefed on Pershing Square’s plans said that the money that Mr. Ackman raised several years ago would be a part of the new listed fund.
Pershing Square declined to comment.
Mr. Ackman’s traditional script, as an aggressive activist investor who buys large stakes in companies he says are undervalued and who then pushes for change, has changed slightly with some of his recent investments.
In late 2012, for example, he made a $1 billion bet against the nutritional supplements company Herbalife, an investment that will reap a windfall only if the company’s stock falls. As Herbalife shares rose last year, Mr. Ackman’s losses multiplied and he is still holding paper losses.
But after a disappointing end to 2013 — Pershing Square returned 9.3 percent last year compared with a gain of more than 30 percent for the Standard & Poor’s 500-stock index — the firm is among the better performing hedge funds this year, returning 18.7 percent so far in 2014.
In another unusual move, Mr. Ackman announced last month that he had teamed up with Valeant Pharmaceuticals to make a $45 billion unsolicited offer for the Botox manufacturer Allergan. (Valeant on Wednesday raised its offer to more than $49 billion.)
The joint bid by a big corporation and a hedge fund manager was the first of its kind and the largest bet Mr. Ackman has made, prompting some to wonder whether it will set a template for his future deals.
Other hedge fund firms, like the Man Group of Britain, have gone public and are traded on a stock exchange. But Mr. Ackman’s firm, Pershing Square Capital, will remain private and not be listed.
Permanent capital structures like Mr. Ackman’s are rare, but there have been others. In March 2007, the British hedge fund Brevan Howard listed one of its funds, BH Macro, on the London Stock Exchange, raising $1.2 billion. Later that same year, the activist investor Daniel S. Loeb raised $525 million in an initial public offering of his Third Point Offshore Investors fund on the London Stock Exchange.
The pitch for potential investors in publicly listed hedge funds is that they can easily buy or sell shares in the listed funds whenever they want, but that argument depends on how much demand there is for the shares at any given time, some industry lawyers say. In addition, there is often a discrepancy between the so-called net asset value of a fund (the value of its investment assets) and the value of the publicly traded entity.
Publicly listed hedge funds can be a way for less sophisticated retail investors to buy shares that reflect the performance of a hedge fund without risking the possibility of not being able to get their money back quickly. The initial value of a listed fund is supposed to take into account the performance of the bigger hedge fund. But a listing also has costs, in fees to the underwriting banks, among others. Those fees are typically taken out of the fund itself.
Still, for Mr. Ackman, whose battles over Herbalife and Allergan have made him an increasingly prominent figure in the markets, the creation of a multibillion-dollar public listing would probably only enhance that role.
Tags: activist investing, BH Macro, bill ackman, closed-end fund, Daniel S. Loeb, hedge funds, investment gurus, LSE, Man Group, offshore fund, PERSHING SQUARE CAPITAL, Pershing Square Holdings, public hedge funds, raising pubic capital for hedge fund investing, Third Point Offshore Investors fund