Bill Ackman has quite a reputation as a risk taker.
He shorts and declares war on stocks he considers fraudulent. He invests in some companies that fail and fail. He campaigned against university presidents who he claimed tolerated progressivism on campus.
He had dreamed of raising $25 billion to found Pershing Square USA Ltd., a giant closed-end fund. The offer fell through and he withdrew it last week.
And his net worth amounts to more than 9 billion dollars.
Now Ackman's main hedge fund, Pershing Square Holdings, has seen its profits for the year basically evaporate.
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According to the company's websiteThe hedge fund lost 4.7% in July, bringing its annual return down to 0.7%. It was up 8.7% by mid-July. The S&P 500 index was up 15.8% for the year as of July 31.
The fund's shares are also listed in Amsterdam and London, and on Friday the stock was in negative territory for the year.
No, it wasn't because the fund had invested in Nvidia. (NVDA) .
By contrast, one of its holdings, Dutch company Universal Music, had a disastrous second quarter, leading to a 23.5% drop in its share price on July 25 to 21.7 euros ($23.79) from 28.38 euros ($31.12). And the stock failed to recover, ending the week at 21.44 euros, down 24.5% over the eight-day period.
The problem is that music distributors are seeing growth in new streaming subscriptions fade. And Universal has finally admitted as much. Investors were shocked that growth problems were being said out loud and dumped the stock.
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Universal Music is, in fact, the largest music company in the world. Its artists include Taylor Swift, Adele, Billie Eilish, Kendrick Lamar, Sting, U2 and Bob Dylan.
So Ackman's hedge fund got caught. It wasn't exactly his fault, but his hedge fund is set up to invest in a limited number of stocks of “high-quality companies” — 10 or less — and hold them for six years or more.
On the other hand, Ackman is a very visible, aggressive and criticising fund manager. So this is a clear stumbling block.
The fund manager buys and sells:
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The fund's investments include Universal Music, Chipotle Mexican Grill (CMG) both classes of Alphabet, the parent class of Google (GOOGL) and (GOOGL) Burger King, parent company of Restaurant Brands International (Fast food restaurant) and the Canadian Pacific Kansas City Railway Ltd.
The idea is for the portfolio to produce outsized gains. Some years, the performance is excellent, such as 26.7% net of fees in 2023 or 70% in 2020. Some years, the returns are not great. In 2015, the performance was negative (-20.5%).
Image source: TheStreet
The hedge fund, based on the island of Guernsey off the coast of France, invests mainly in American stocks.
The goal is to focus “on high-quality companies that it believes have limited downside potential and that generate predictable, recurring cash flow,” the firm’s website says. In certain cases, it “seeks to catalyze management, operational and governance changes as levers to create substantial, durable, long-term value for shareholders.”
But investors must have money and be sophisticated. That's why investors can invest in funds like those managed by Ackman only if they are accredited. To be considered an accredited investor, most need a net worth of more than $1 million and an income of more than $200,000.
Investors are preferred to put their money in for at least five years; there are penalties for withdrawing money early.
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