Pershing Square IPO: Investing in Bill Ackman

Activist investor Bill Ackman announced yesterday that he is planning a Pershing Square IPO to bring the $15 billion hedge fund public.

Activist investors like Bill Ackman, and their funds, take large positions either for or against a stock in hopes of making large changes to the company. These changes will often affect the company's management, business practices, or corporate structure.

Pershing Square IPO
Frequently, these investors will buy large portions of a company's stock in order to obtain seats in the company's board of directors. Some, like Ackman, are known for taking huge short positions in a stock, before publicly denigrating the company and sending shares lower.

Since 2004, the Pershing Square Capital Management hedge fund has been Ackman's main vehicle for these activist investments. By bringing shares of his fund public, Ackman is hoping to bring retail investors into the action.

Ackman has reportedly been planning an IPO since 2011.

Raising money through an IPO would give Ackman more capital for his investments, and also protect him from the type of large investor redemptions that have hurt him in the past.

In 2009, nearly 27% of Pershing's funds were retracted by investors. The influx of cash from an IPO would lessen the impact of investor redemptions on the fund.

"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. "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."

No specific date has been set for the Pershing Square IPO, but Ackman said he wants the stock to begin trading later this year.

Pershing Square IPO Follows Herbalife Blunder

The timing of the Pershing Square IPO announcement by Ackman is curious, because it follows one of the largest professional missteps of his career.

At the end of 2012, the billionaire announced that he had taken out a $1 billion short position on Herbalife Ltd. (NYSE: HLF). Over the next year and a half, Ackman publicly trashed the company stating that the company was a "pyramid scheme," while activist investor and rival Carl Icahn took an opposing position, and bought in on HLF shares.

The battle culminated last month when Ackman announced he would deliver a "deathblow" to HLF shares that would send the stock to $0. However, immediately following Ackman's presentation on HLF on July 22, HLF shares soared 25% in one day.

In this week's IPO announcement, Ackman admitted that continually hyping his presentation against the company was a mistake.

To his credit, HLF shares are down 3% since his presentation and 33% year to date. At that point, it would mean his presentation was successful in slamming the stock - however, the 25% gain in the face of his "deathblow" presentation is the resonating image.

While Ackman has had some public slips in recent years including HLF and JC Penney Co. Inc. (NYSE: JCP), his overall track record over the past decade has been impressive. That's what he's hoping will draw investors into the Pershing Square IPO...

What Pershing Square IPO Is Banking On

Since its founding, Pershing Square has brought an average annual return of 21% to investors. In 2014, the fund is up 25% so far, despite the Herbalife drama.

"The pro side is [Ackman's] had a pretty good track record from Pershing Square," Alpha Strategies Investment Consulting Inc. President Jay Rogers told Bloomberg. "A lot of people are fascinated with going public for the amount of money you can raise and it lowers your cost of capital."

By taking Pershing Square public, Ackman is making another big bet that retail investors will want to follow his lead.

After all, buying shares in Ackman's hedge fund is essentially like playing his high-profile activist investments. Traditionally, only wealthy investors with large amounts of capital have had access to the hedge fund. The Pershing Square IPO changes that.

Ackman is famous for making big bets. As the Pershing Square IPO date approaches, we'll get a better glimpse of whether investors are willing to put their money on Ackman.

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