| Bill Ackman |
Bill Ackman is in discussions with investors about raising as much as $3 billion from an initial public offering of a new fund as a way to secure more permanent capital to finance Pershing Square Capital Management’s activist investing, according to people familiar with his thinking. The public offering would be for shares in a new hedge fund that would mirror the firm’s flagship strategy. Ackman is not planning to take the entire firm public, according to these people. In addition to having conversations with investors, Ackman outlined his desire to obtain more stable capital in the firm’s May 25 investor letter.
“If we could increase the amount of our capital that is permanent, it would enable us to be more opportunistic during times of market and investor distress, and would also enable us to take larger stakes in a greater number of holdings,” Ackman wrote in the letter.
This is not the first time Ackman has considered raising money via a public offering. He broached the possibility at a December 2007 hedge fund conference, saying that tapping the public markets would let his firm make larger investments and have more influence in activist campaigns.
At the firm’s annual investor dinner in January, he discussed the firm’s desire to increase permanent capital, and he spent the first half of the year researching options. The firm is close to finding a solution, although it is still weighing potential issues, according to the letter.
Pershing Square manages about $10 billion, up from $8.6 billion on January 1. In his May investor letter, Ackman noted how much of that sum—about 10% to 15%—must be held in reserve against possible redemption requests. Despite the increase in assets, he is unable to invest as much as he would like, given the assets held in reserve. “The need to manage for investor liquidity is one of the few instances where managing the business of running a fund conflicts with the investment objectives of running a fund,” Ackman wrote in the letter. “It is a real cost to all investors, but as we are currently structured, it is a cost we must continue to bear.”
This cost was particularly burdensome during the financial crisis, when panicked investors yanked their cash. “We kept more cash on hand than we would have preferred for investment purposes, which reduced the returns we would have achieved had we been able to be more fully invested,” Ackman wrote. Pershing Square fell 12.92% in 2008 but gained 40.29% in 2009 and 29.56% in 2010. It is up about 2.5% this year through May.
But Ackman has plenty of investors now, as he noted in the letter. “It is time for my annual reminder to our investors, now nearly 400 strong, that it is increasingly challenging to balance your requests to meet with members of the investment team with the necessity that we focus our efforts on investment research and decision making,” he wrote. “As you can imagine, these requests, often for ‘only 10 minutes’ if accepted, add up to a substantial time commitment.”
