Bill Ackman Launches Pershing Square USA Fund, Largest Closed-End Fund Ever

Investor Bill Ackman tracks


Standard & Poor’s 500

Aramco shares have risen about 10 percentage points this year, as it prepares to sell a new closed-end equity fund — Pershing Square USA — that could be worth $25 billion.

The investor roadshow for the new fund — which will trade under the ticker symbol PSUS — began Tuesday, and the deal is expected to price early the week of July 29 at $50 per share.

Ackman is using his star power — he has more than a million followers on Twitter — and strong returns over the past five years to sell what will be the largest U.S. closed-end fund ever. But this year hasn’t been great, as he has had very limited exposure to the Magnificent Seven stocks that have driven the stock market higher. Alphabet is his only holding among the seven.

Ackman’s current primary investment vehicle,


Pershing Square Holdings,

A European-listed closed-end fund with a market capitalization of about $10 billion, it rose 5.7% through June 30 on a net asset value basis, according to the fund’s website. That’s behind a 15.2% total return for the S&P 500. The fund typically reports its returns weekly.

Ackman, who heads Pershing Square Capital Management, is believed to be seeking to raise $25 billion for Pershing Square USA, but has not publicly set a target.

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Ackman faces some hurdles, most notably a stagnant closed market that has seen almost no issuance since 2022. Ackman’s fund would be the largest ever in a closed market in the United States, where the largest fund currently totals about $5 billion.

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The best measure of Ackman’s performance is Pershing Square Holdings, which trades on


London

(PSH.UK) and on


Euronext

(PSH.Netherlands) as well as through over-the-counter trading under the symbol PSHZF.

The fund’s shares rose 1% to $53.73 on Tuesday, having gained 14% through midyear — outperforming the underlying portfolio — because the discount to asset value has narrowed this year to 23% from 29%.

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The fund’s shares have returned 26.5% annually over the five years ended in June, far outpacing the S&P 500’s 15% annual return over that period. But the stock has lagged the S&P 500 over the longer term, since the fund went public in 2014 at $25 a share. Since then, the fund has returned 9% annually through June based on its share price, lagging the S&P 500’s 13.5% annual return.

The fund’s performance over the past decade has been better than its net worth, at about 12% annually, but it still underperforms the S&P 500. The discrepancy between the fund’s stock performance and its net worth reflects the discount to stocks relative to its net worth. Ackman’s returns over the past decade have been hampered by a tough period from 2015 to 2017, when it lagged badly behind the market.

Closed-end funds issue a fixed number of shares and can trade at a price above or below their asset value based on investment demand. Most closed-end funds in the United States trade at a discount, as do funds in Europe.

Pershing Square Holdings maintains a concentrated equity portfolio that includes Chipotle Mexican Grill.
,

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Hilton Worldwide
,

Alphabet, Howard Hughes Holdings
,

and global restaurant brands
.

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Among those investments, Alphabet, Hilton and Chipotle have posted gains this year, while Restaurant Brands and Howard Hughes have posted losses.

Ackman, like many active managers, did not have sufficient exposure to Magnificent Seven shares. At least based on filings made on March 31, he does not own Nvidia.
,

Amazon.com
,

And Microsoft
,

Which led the market this year.

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The new closed-end equity fund will invest primarily in “12 to 20 long-term core investments in large-cap, investment-grade, free cash flow-generating, perennial growth companies in North America,” according to its prospectus.

Ackman may also make macro bets, like the one he made in 2020 against corporate bonds that proved to be a big winner for Pershing Square during the pandemic selloff.

Ackman faces some challenges in selling Pershing Square USA. Investors can buy his European closed-end fund at a 23% discount to net asset value, though it has complicated tax implications. The new fund will charge a steep 2% annual fee, double that of most actively managed equity funds. (Ackman is waiving that fee for the first year.) Then there’s the tendency of closed-end funds to trade at a discount to net asset value, which makes selling a new fund nearly impossible.

But Ackman is not lacking in confidence, and he hopes to launch the largest closed-end fund ever in the United States — and one of the largest IPOs and fund offerings of any kind in recent years.

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Write to Andrew Barry at [email protected]

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