In the space of a few weeks, Ackman’s bold plan to steer a new
investment fund onto the venerable New York Stock Exchange has
collapsed around him. After betting his wide X following would
help Pershing Square USA Ltd. raise $25 billion in an initial
public offering – in what would’ve been an unprecedented feat
for a US closed-end fund – Ackman cut that target to $4
billion and then to $2 billion. On Wednesday, Pershing Square withdrew the
IPO completely.
What comes next is uncertain; Pershing Square has promised to
“report back.’’ But this much is sure, investors say: If
Pershing Square USA ever does reach the US stock market, it
won’t be in its current form.
It's a remarkable comedown for Ackman, whose long, colorful
career has been punctuated by outsize wins and devastating
losses. His latest trouble is nothing next to beatings he took
on Herbalife
Ltd. and Valeant Pharmaceuticals, but it comes at a
time when he’s sought — and gained — widespread attention. His
full-throated criticism of diversity initiatives and vocal
support for former President Donald Trump has
raised his profile from the narrow confines of Wall Street to
the battlefield of the nation’s culture wars.
Behind the IPO debacle was a series of missteps that left many
on Wall Street wondering what Ackman was thinking. Even the
way he ended the IPO stunned bankers and other participants.
On what was supposed to be a routine update call, Ackman
announced: “I woke up this morning and had an idea. At
Pershing Square we only do great deals -- home runs. I'm going
to pull the deal.”
A few days earlier a major backer, fellow hedge-fund manager
Seth Klarman, had retreated after his Baupost Group offered to
invest $150 million. Klarman was angered that Ackman named him
in a letter to big investors about the IPO that later was made
public. A major Democratic donor, Klarman was also likely
unhappy about being associated with the Trump-supporting
Ackman, people who know Klarman say. (Ultimately the company
disclosed the letter, which Ackman had written to investors
who bought 10% of his firm in June.)
In the same letter, Ackman made a last-minute entreaty: he
urged wealthy would-be investors to step up, “the sooner the
better.”
Nothing worked
Associates and rivals alike say the debacle highlights one of
Ackman’s signature traits: a personal conviction, sometimes
veering toward hubris, which has been central to his success
in activist investing.
Ackman entered the year on a high note. His calls for the
resignation of Harvard president Claudine Gay over the
university’s failure to address campus antisemitism ended with
her stepping down. Following the playbook of Trump and Elon
Musk, Ackman cultivated a social-media following he hoped he
could monetize.
But translating that ethos to the buttoned-up world of
investing isn’t necessarily easy, said William Birdthistle,
former director of the Securities and Exchange Commission’s
division of investment management.
“It’s trickier when you’re attempting to sell people financial
returns,” Birdthistle said. “It’s a risky play.”
The structure of the closed-end fund was a problem from the
start. The new fund was designed to mirror a similar vehicle
he has in Europe, Pershing Square Holdings Ltd. The proposed
US-listed fund would own stakes in about a dozen big North
American companies. Though closed-end funds often trade below
the underlying value of their assets, Ackman said in his July
24 investor letter that he expected his would buck the trend,
and trade at a premium.
From Ackman’s vantage, the fund makes sense. It would provide
a permanent source of capital. If investors want to exit, they
just sell their shares to someone else. (This would appeal to
a hedge fund manager accustomed to ministering to the whims of
investors who have the opportunity to pull out money if
they’re displeased with returns.) For a closed-end fund buyer,
it can be harder to see the allure of getting in early,
pre-IPO, since they mostly trade at a discount to their
assets.
Nonetheless, Ackman spent the past few weeks in full sales
mode. He spoke to more than 150 investors to pitch the IPO. He
touted his 16.5% annualized return since Pershing’s inception
in 2004.
Some advisors were more circumspect.
“I have trouble seeing it trade well soon,’’ John Cole Scott,
president of Closed-End Fund Advisors, said in an interview
before the IPO was abandoned.
The announcement of the IPO withdrawal ultimately nodded to
the same flaw.
“Over the last seven weeks, we have met with many institutions
and family offices, and held numerous town halls,” the
statement said. “While we have received enormous investor
interest in PSUS, one principal question has remained: ‘Would
investors be better served waiting to invest in the
aftermarket than in the IPO?’”
Ackman did notch a big personal win in June with the sale of
10% of his hedge fund firm, Pershing Square Capital
Management, for more
than $1 billion, valuing the total firm at $10.5
billion. The investors who bought in include fellow hedge fund
founders Marc Lasry and Doug Hirsch, multi-family office
Iconiq Investment Management, Banco BTG Pactual SA and an
international group of family offices. The valuation pushed
his net worth to $8 billion.
It also made Pershing Square, with just 40 employees and total
assets of about $19 billion, one of the most expensive asset
managers on the planet.
The drama around Pershing Square USA’s IPO has taken attention
away from what turned out to be a lackluster year of returns
for Ackman. His Pershing Square Holdings, the closed end fund
that trades in Europe, climbed 6.4% through July 23, compared
with 16.5% for the broader market. Those returns don't include
the tumble in shares of Universal Music Group NV that started
late last week. One of Pershing Square's biggest holdings, it
has fallen
more than 20% on disappointing earnings.
While Ackman has employed his activist investing playbook at
Harvard and other universities, his social media following —
which he hoped would help the IPO — is far from that of Trump
or Elon Musk.
Birdthistle, the former SEC official, said there’s a reason
for that.
“I feel like Trump and Musk are a little bit more organic, and
unfiltered in their approach: what you see is what you get,”
Birdthistle said. “With Ackman, it’s a little more
constructed.”
In the hours after Wednesday’s news hit, Ackman was unusually
restrained on X. His first post — meme free — was the press
release announcing the IPO had been withdrawn.
— With assistance from Bailey Lipschultz
(Updates with additional context starting in eighth
paragraph.)
